What Would a Merger Mean for Gilead? Top Analyst Weighs In

When it comes to Gilead Sciences (GILD), recent focus has landed squarely on its potential COVID-19 treatment, remdesivir, but now, it’s grabbing headlines for an entirely different reason.

On Sunday, Bloomberg reported in an unconfirmed article that AstraZeneca (AZN) informally approached Gilead to discuss the possibility of a merger. It should be noted that currently, formal talks are not ongoing.

Writing for RBC Capital, 5-star analyst Brian Abrahams tells clients that the market caps of GILD and AZN, which land at $96.6 billion and $138 billion, respectively, could make the transaction “one of the largest in recent memory.” He added, “Recall in February, we had cited an acquisition as one possible outcome, and at the time had viewed a 25-30% premium to the $68 stock price at that time as the minimum necessary to acquire the company; with recent stock/sector appreciation and improving strategy and diversification, we believe GILD would be unlikely to agree to a takeout/merger valuing at anything less than ~ $100/share.”

The collosal size of this potential deal as well as GILD’s improved approach under its new management may actually make it more difficult to finalized any agreement. However, Abrahams argues that the deal could provide synergies for both companies. In addition, the fact that “Pascal Soriot and Daniel O’Day overlapped as executives at Roche could lend itself to better understanding and increased willingness to work together.”

Expounding on this, Abrahams stated, “We have often highlighted GILD’s strength in virology – particularly their core franchises in HIV and HCV, and also note the company’s expanding commitment to immuno-oncology and inflammation. In our view, GILD’s assets could round out AZN’s product portfolio by adding expertise to the virology and inflammatory areas, while GILD’s burgeoning oncology portfolio could potentially synergize well with AZN’s extensive offerings in this area.”

If that wasn’t enough, any developments around M&A activity tend to cause major share price swings for biotech stocks, which bodes well for GILD, in Abrahams’ opinion.

It should come as no surprise, then, that Abrahams stayed with the bulls. The analyst rates GILD an Outperform (i.e. Buy), while keeping his price target at $88. This target suggests shares could surge 14% in the next year. (To watch Abrahams’ track record, click here)

What does the rest of the Street think about Gilead’s long-term growth prospects? It turns out that other analysts are not as optimistic. 10 Buys, 14 Holds and 4 Sells were issued in the last three months, which put the consensus rating at Hold. Additionally, the $79.95 average price target suggests a modest upside of 3%. (See Gilead stock analysis on TipRanks)

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