Still Very Bullish On Gilead

I remain long and very optimistic about the prospects for Gilead Sciences' stock. One of the reasons for my bullishness was a likely Genzyme deal. A deal now looks even more likely given recent developments, as the two parties are holding friendly talks.

The higher the price of the deal the better short term sentiment will be, but I do not believe that is the most important aspect of the deal. If Genzyme gets taken out more than ten percent of the large cap biotech sector will disappear. I believe that decrease in supply is bullish for the entire sector.

Gilead had over $2.5 billion remaining on its share repurchase plan as of the end of the third quarter. At the JPMorgan Healthcare Conference Gilead management reiterated their intention to finish the repurchase by the end of 2011. That would amount to buying approximately 8% of their shares outstanding at current prices. I believe the attractive valuation combined with the favorable supply/demand equation for Gilead's shares will equal higher prices.

6 comments:

IC said...

Where are they getting the money for the buyback? Cash or loans?

Tsachy Mishal said...

Both cash and loans but at the end they will likely still have net cash at the end of the year. They have the cash but the problem is that it is offshore and if they use it to buy back stock they would have to pay US taxes. So they borrow in the US and hold their cash overseas. i believe its silly but thats what all corporations do. i would just take the one time tax hit and not borrow the money.

Tsachy Mishal said...

The bottom line being that they are not leveraging themselves and will still be in a net cash position.

Tsachy Mishal said...

Unless you can support that statement I am deleting your comment. This is not the Yahoo message board.

Tsachy Mishal said...

I have deleted the comment.

Anonymous said...

Serious question.

Where has the volume gone?