GSK's [GSK] share price could be a top defensive play for healthcare sector investors right now. The coronavirus and the efforts to produce a vaccine have pushed the sector firmly into the spotlight. However, lockdown measures have translated into a drop in sales for the vaccination-specialist, and have ultimately seen GSK’s share price fall.
GSK's share price has dropped over 24% this year to date. The downward trend has continued into the autumn, with the stock down 7% in the last month.
GSK's share price is now trading 27.6% below its 52-week high. Investors looking for good quality stocks at a discount may well find GSK's share price difficult to ignore. The drug maker offers a diversified business model, strong profit margins and a handsome dividend.
So, should investors buy ahead of Q3 earnings this week, or hold off in case of a further dip in the stock?
When is GSK reporting Q3 earnings?
What happened last quarter?
In the second quarter, GSK’s share price and business felt the effects of lockdown. Revenue came in at £7.62bn, down from the £7.8bn seen in the same period a year ago. This is because lockdowns have reduced the number of patients receiving medical treatments.
Overall, vaccine sales slumped 29% to £1.13bn from the same quarter last year, forcing the drug maker to warn of an inevitable drop in annual profits.
“As expected, our performance this quarter was disrupted by COVID-19, particularly in our Vaccines business, as visits to healthcare professionals were limited due to lockdown measures. Overall, we are seeing good underlying demand for our major products and are confident this will be reflected in future performance when the impact of COVID measures eases,” said GSK CEO Dame Emma Walmsley.
“As expected, our performance this quarter was disrupted by COVID-19, particularly in our Vaccines business, as visits to healthcare professionals were limited due to lockdown measures. Overall, we are seeing good underlying demand for our major products and are confident this will be reflected in future performance when the impact of COVID measures eases” - Dame Emma Walmsley, GSK CEO
What to look out for in GSK's Q3 earnings
Things should be better for GSK’s share price in the third quarter. An easing of lockdown measures means more people going to the doctor and more vaccination sales for GSK. Investors will also be looking out for the continuation of Walmsley’s turnaround strategy. This has seen the CEO spin off the consumer health business allowing GSK to focus on its core products, along with pumping money into R&D for blockbuster drugs.
One blockbuster drug to keep tabs on is Shingrix. In Q2, sales of the shingles vaccination saw a sharp decline, coming in at £323m, down from the £647m seen in the previous quarter. This was, in part, due to stay-at-home orders in the United States leading to lower vaccination rates.
GSK's treatments pipeline is another big area to watch. In Q2, GSK said 75% of its pipeline is focused on immunology. Given that the group's vaccination business has a 41% operating margin, an update on the pipeline could deliver GSK's share price a much-needed shot of adrenaline.
of GSK's pipeline focuses on immunology
Time to buy GSK?
Berenberg analysts are bullish on both the healthcare sector and GSK. In a recent investor note, they estimate the sector will see 6% compound annual growth in sales up until 2024. They also expect an earnings CAGR of 10% for the same time period. The analysis does not include any COVID-19 therapies, which they expect would provide a "short-lived potential benefit" to sales.
“At the height of lockdown, vaccine demand slumped. However, prescription trends have bounced back since June and, while 2020 guidance for Shingrix is challenging, we have no concerns with regard to future growth,” said Berenberg.
Berenberg has a 1,800p target on GSK’s, to go with their Buy recommendation. Hitting this would see a 33.8% upside on the current price (as of 26 October’s close).
Among the analysts tracking the stock on the Financial Times, GSK has an average 1,840p price target. Hitting this would see a 36.8% upside on GSK’s share price through 26 October. For income seeking investors, GSK offers a solid dividend, which is expected to yield 5.66% this year.
Given how far GSK's share price has fallen in 2020, now could be the time to pick up a high quality defensive stock at a bargain price.
|PE Ratio (TTM)||35.94|
|Quarterly Revenue Growth (YoY)||2.40%|
GSK's share price vitals, Yahoo Finance, 27 October 2020