Gilead Could Goose Biotech ETFs
Some well-known biotechnology exchange traded funds could be stirred by Gilead Sciences (GILD) fourth-quarter earnings report released Tuesday after the close of U.S. markets.
The California-based company posted net income of $3.49 billion, or $2.18 a share, compared with $791 million, or 47 cents a share, a year earlier as revenue more than doubled to $7.31 billion from $3.12 billion on the back of strong sales of the Hepatitis C drug, Sovaldi. On an adjusted basis, Gilead earned $2.43 a share. Analysts expected EPS of $2.23 on revenue of $6.72 billion.
Shares of Gilead fell 5% during Tuesday’s after-hours session, declines that could prove problematic for biotech ETFs heavy on the stock that are coming off dismal showings during Tuesday’s traditional trading session. Perhaps in anticipation of the Gilead results or for other reasons, traders took profits in biotech ETFs yesterday with the largest biotech ETF, the iShares Nasdaq Biotechnology ETF (IBB) , falling 0.6%.
The Market Vectors Biotech ETF (BBH) , another fund with a large weight to Gilead, dropped 0.4%. IBB has a weight of 8.1% to Gilead, making the stock the ETF’s second-largest behind Biogen Idec (BIIB) at 9.7%. BBH has the largest Gilead weight by far among biotech ETFs. Gilead is 14.2% of BBH’s weight, nearly 300 basis points more than the ETF allocates to Amgen (AMGN), its second-largest holding. [The Right Time for Biotech ETFs]
While Gilead’s immediate post-earnings response was less-than-encouraging, there is some good news. For example, the company said it intends to pay a quarterly dividend of 43 cents a share and repurchase another $15 billion of its own shares. Prior to that announcement, Gilead did not pay a dividend as dividends are a rarity in the biotech space as highlighted by IBB’s scant trailing 12-month yield of 0.15%.
Based on Tuesday’s closing prices, Gilead’s new dividend gives the company a yield of 1.6% while the new buyback represents over 9% of the company’s $161.7 billion market value.
Gilead’s dividend plans may have initially irked investors. After all, biotech stocks, even behemoths like Gilead, receive growth stock treatment and some investors might interpret a new dividend from a growth company as that firm waving the white flag on growth.
However, there is precedent for biotech dividends that should assuage skittish BBH and IBB investors. In the third quarter of 2011, Amgen paid its first cash dividend. The payout has since more than doubled while the stock has nearly tripled. Obviously, there have been many more catalysts, but since Amgen paid its first dividend, BBH and IBB have returned an average of 233%. [Behind the Dominance of Health Care ETFs]
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Gilead Could Goose Biotech ETFs
