Gilead Merger Unlikely at This Point, Says 5-Star Analyst

Gileaz? Astrazenead? GileastraZeneca? Copywriters will have a lot to work with, should rumors of a possible merger between pharma giants Gilead Sciences (GILD) and AstraZeneca (AZN) ever become a reality.

Market watchers were taken aback on Sunday, when a Bloomberg article reported that last month, AstraZeneca approached Gilead about a possible merger. A deal between two of the biggest coronavirus warriors would amount to the largest healthcare merger of all time. It is understood that although Gilead discussed the matter with advisors, the companies aren’t currently having any formal discussions, and that, overall, Gilead is not on the lookout for any possible mergers with other pharmaceutical names. Instead, the company would rather focus on smaller deals or other bolt-on additions, as it has done recently.

Although J.P. Morgan analyst Cory Kasimov notes that “where there’s smoke, there’s sometimes fire,” the possibility of a merger appears far-fetched. Even though he understands that Gilead’s robust balance sheet, “substantial cash flows from its HIV/HCV franchises,” and relatively low valuation would be attractive for a potential buyer, the 5-star analyst lists several reasons why he believes “odds are low that we’ll have to get used to a name like GileastraZeneca.”

Kasimov said, “Our initial skepticism that this will materialize is rooted in: (1) the size (largest BioPharma deal ever?!); (2) almost complete lack of overlap/synergies (yes GILD is attempting to build out its oncology franchise, but this is still very much a work in progress); (3) the impact of remdesivir (a potentially large but also (hopefully) short-term and difficult to value opportunity that has boosted current valuation); (4) an enormous international merger seems like a big ask in this environment; and (5) GILD’s potentially tepid interest in a ‘merger’ (the article even states that it’s not), let alone the interest of AZN shareholders.”

Given all of the above, Kasimov currently rates GILD shares a Neutral, and has no set price target in mind. (To watch Kasimov’s track record, click here)

The rest of the Street backs the J.P. Morgan analyst’s take. Based on 10 Buys, 14 Holds and 4 Sells, the analyst consensus rates Gilead a Hold. The average price target of $79.95 could provide investors with small upside of 2%, should it be met over the next 12 months. (See Gilead stock analysis on TipRanks)

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