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Where will GSK’s share price be in five years?

GlaxoSmithKline’s [GSK] share price has risen 28.77% in the five years to 12 December, outperforming the FTSE 100’s 14.9% increase in the same period of time. 

Since the share price bottomed out at 1275p in December 2017 it has been on an upward trend, climbing 39.7% to reach a 17-year high of 1782p on 30 October this year. The 2.42% spike that day was boosted by solid third-quarter sales that prompted it to upgrade its full-year earnings forecast. 

While GSK’s share price appears to be trailing off somewhat since then, it doesn’t look like it will endure another sell-off like it endured last year, when shares dropped 9.37% over the first ten days of December.

GSK expected to announce its fourth quarter results on 5 February 2020, so what should traders look out for over the years to come?  


GSK’s financial performance 

Between 2014 and 2018, the FTSE 100 firm’s annual turnover has grown 33% from £23bn to £30.8bn. It saw the biggest annual jump in 2016 – of 8.2% year-over-year. It has average annual revenue growth forecast of 4.6% and is set to outperform the UK market’s 3.6% per year, according to data from Simply Wall Street. 

While the company’s operating profit has kept up with that growth – rising 52% in the past four years £5.48bn by 2018 – its earnings per share have fluctuated massively over the years.

At its height in 2015, earnings reached 174.3p per share. However, this fell 89% to 18.8p per share the following year. It climbed back up to 73.7p for 2018 but posted third quarter EPS of 31.4p. 

However, with its third quarter performance reflecting strong operating profit, increased investment in research & development and a lower expected tax rate for the year, GSK expects EPS for 2019 to be “around flat” year-on-year from a decline of 3% to 5% forecasted in the second quarter. 

89%

Earnings decline 2015-2016

As a result, Simply Wall Street projects earnings growth of 11% year-over-year, putting the company behind the UK market’s projected 12.4% annual growth. 


GSK’s growth drivers over the next five years 

GSK has undergone a significant transformation of its departments, following a decision in 2018 to split the company into two separate divisions – consumer healthcare and pharma and vaccines – after forming a joint venture with US pharmaceuticals giant Pfizer.

In an effort to reverse years of underperformance, GSK’s chief scientific officer Hal Barron established that the company aims to double its success rate in finding new drugs by making one person responsible for the continuation of each drug development programme and while also supporting staff in taking risks to find “blockbuster medicines”. 

Alongside this, Barron set out a plan to address shareholder’s impatience when it comes to the company’s inability to match the achievements of rivals. “We’re trying to appease the investor side ... by developing and progressing nicely the late stage pipeline,” he told the Financial Times in July. 

Meanwhile, the company has increased its focus on researching cancer treatments. The $5bn acquisition of US-based ovarian cancer research specialist Tesaro [TSRO] is expected to rival fellow British firm AstraZeneca’s [AZN] interest in the area. Meanwhile, GSK has also entered into a $500m agreement with UK-based biotech Adaptimmune [ADAP], which specialises in the development of therapies to combat cancer.

 

Market cap£115bn
PE ratio (TTM)46.66
EPS (TTM)0.99
Return on assets (TTM)7.04%

GSK share price vitals, Yahoo finance, 12 December 2019


Is now the time to buy? 

The stock has had a consensus rating of hold for the past three months, among 24 analysts polled by CNN. 

However on 21 November, UBS upgraded its rating from neutral to buy suggesting it could be on strong run. Zacks Equity Research also has a buy rating on the stock based on its price-to-book ratio of 5, which compared to the industry’s 6.35 is attractive. 

The pharmaceutical company’s return on equity is also another bright spot for traders. It currently sits at 27.9% and is forecast to hit 99.7% in three years’ time – significantly higher than the projected 12% for the industry, according to Simply Wall Street.

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