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Gilead (GILD) Could Unleash Massive Accelerated Repurchase, Suggests RBC Capital

|Includes: ABBV, ESRX, Gilead Sciences, Inc. (GILD)

Gilead (GILD) Could Unleash Massive Accelerated Repurchase, Suggests RBC Capital

RBC Capital maintained an Outperform rating on Gilead Sciences (NASDAQ: GILD) with a price target of $125. The stock declined recently after Express Scripts (NASDAQ: ESRX) announced an exclusive HCV deal with AbbVie (NYSE: ABBV). In the view of analyst Michael J. Yee, the deal will only impact about 2-10% of the HCV market, and ultimately he thinks the stock will recover. Further, he suggested Gilead could response with a massive accelerated buyback.

"After a recent 17% pullback in the last week, we think GILD should aggressively repurchase its own shares and/or move to a specific "accelerated" share repurchase similar to what they announced in May of 2014 to complete $3B by September 2014," said Yee. "At that time and with a 20% pullback in weeks after Senator Waxman made comments about Hep C pricing, GILD announced 1) it would repurchase $2.9B in stock from May to Sep, and 2) a new $5B authorized plan (which started to be used in October). Sovaldi scripts were very strong during Q2 and GILD stock went up +33% from May to Sep 2014...but even during Q3 when scripts were actually rapidly declining...GILD stock went up +15% and GILD bought back over $2B in Q3."

"We think a formal accelerated plan - for example to "finish" the $5B plan over the next couple of months - and perhaps a new $5-10B authorization would: 1) make easy financial sense as explained below 2) be smart use of piles of billions of cash building up right now, 3) give confidence to the market that there are no fundamental changes to the outlook and the stock is cheap and there will be a big corporate purchaser buying in open market," he added.

Disclosure: The author is long GILD.