Time to Book Profits on This NYSE-Listed Pharma Major – GSK

Jan 21, 2022 12:00 AM PST | Team Kalkine
Time to Book Profits on This NYSE-Listed Pharma Major – GSK

GlaxoSmithKline PLC

GSK Details

GlaxoSmithKline PLC (NYSE: GSK) is a multinational healthcare company driven by science and technology. Its business segments are as follows: 1) Pharmaceuticals, 2) Vaccines, and 3) Consumer Healthcare. The company's research is focused on respiratory illnesses, HIV/infectious diseases, vaccines, immuno-inflammation, oncology, and uncommon diseases. GSK has 2.52 billion American Depository Shares (ADS) listed and outstanding, with each ADS representing two ordinary shares.

Latest News:

  • Change in Leadership: GSK announced Tony Wood's appointment as Chief Scientific Officer (CSO) designate on January 19, 2022. Tony will take over full responsibility for R&D from the current CSO, Dr Hal Barron, on August 1 2022. Hal will stay on GSK's Board as a Non-Executive Director with additional obligations to support R&D.
  • Bids for Consumer Healthcare Division: On January 15, 2022, GSK stated that it had received three unsolicited, conditional, and non-binding offers from Unilever PLC, a worldwide consumer products corporation, to acquire its Consumer Healthcare unit. The most recent bid received on December 20, 2021, called for a total acquisition value of GBP 50 billion, made up of GBP 41.7 billion in cash and GBP 8.3 billion in Unilever shares. GSK rejected all three approaches because they fundamentally undervalued the Consumer Healthcare business and its prospects.

Q3FY21 Results:

  • Growth in Revenue: The company reported a YoY increase of 4.98% in revenues to GBP 9.08 billion during Q3FY21 (ended September 30, 2021) from GBP 8.65 billion during Q3FY20.
  • Reduction in Profitability: GSK reported a decline in net income to GBP 1.17 billion during Q3FY21 vs. GBP 1.24 billion in Q3FY20.
  • Cash and Debt Position: As of September 30, 2021, the company had cash and cash equivalents (including liquid investments) of GBP 3.51 billion and total debt of GBP 25.61 billion.

Key Risks:

  • Competition Risk: GSK participates in the pharmaceutical business and competes directly with larger firms with excellent financial and operational capabilities. These competitors' advanced innovation or remarkable product development could impact company operations.
  • Exchange Rate Fluctuation Risk: GSK conducts business in various currencies other than GBP, exposing it to exchange rate volatility risk.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

GSK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

GSK stock price rose 14.48% in the past three months and is currently leaning towards the higher end of its 52-week range of USD 33.53 to USD 46.86. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 59.13. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 42.78.

Considering the uptick in the stock price, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 45.28, down 0.90%, as of January 20, 2022, at 11:02 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV.