Will Q2 results give GSK’s share price a boost?

GSK’s share price is on the rise this month, but will second quarter results be a recipe for further momentum? Along with headline numbers, GSK’s product pipeline will be under the microscope. Elsewhere, GSK finds itself towards the bottom of the table of HSBC’s pharmaceutical stock rankings.

• GSK’s share price down 3.4% this year, but up over the past month.
• Second quarter results due Wednesday; first quarter saw growth excluding Covid-19 sales.
• GSK out of favour with analysts at HSBC.

Heading into Wednesday’s second quarter (Q2) results, the GSK [GSK.L] share price is up 2.1% over the past month, although it remains down over the year so far.

Having spun out its consumer healthcare business as Haleon [HLN.L], GSK is now a pure-play on pharmaceuticals. However, it’s a tough sector to be a part of, with high development costs and there’s no guarantee of getting regulator approval. That means GSK’s product pipeline will be under the analyst microscope in this week’s results.
How is GSK’s share price performing?

Despite being up over the past month, GSK’s share price has dipped 3.4% this year, closing Friday 21 July at 1,388.2p. That’s on par with rival AstraZeneca’s [AZN.L] 4.65% decline, but better than Pfizer’s [PFE] 28% collapse over the same period.  

Longer term, GSK’s share price hasn’t delivered for investors, with the stock down over 11% in the past five years, while AstraZeneca’s has soared over 86% in that time.

What’s been moving the Glaxo share price?

At the end of June, GSK announced it had acquired Canadian biopharmaceutical company Bellus Health in a $2bn deal. Bellus Health has developed a drug to treat refractory chronic cough (RCC) – a long-term respiratory condition characterised by a persistent cough. GSK says that 28 million people suffer from RCC globally. 

In the UK, the health regulator has approved GSK’s vaccine for common respiratory virus RSV. The Medicines and Healthcare products Regulatory Agency gave the go-ahead for Arexvy in people aged 60 years and older. RSV exhibits cold-like symptoms but can develop into pneumonia in toddlers and the elderly.  The acquisition and the approval from the regulator mean GSK’s respiratory segment performance will be on watch in the company’s upcoming earnings.

Haleon, the company GSK spun out last year, has also been in the news. The maker of Panadol intends to make hundreds of job cuts to its 24,000-strong workforce in the UK and globally, reports the Guardian. This is part of a drive to become a more “agile” organisation.

What to look out for in upcoming results?

GSK’s revenue dropped 8% year-on-year to £6.9bn in Q1, while adjusted operating profits were flat at £2.1bn. Free cash outflow was £689m, compared to an inflow of £1.5bn the previous year. Net debt stood at £18bn.

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That drop in revenue is down to a fall in COVID-19 vaccine sales. Once that’s stripped out, however, the picture becomes more favourable with turnover up 10%. Vaccines delivered £2bn in sales during Q1, up 9% year-on-year. Speciality medicines sales were £2.2bn, up 13% year-on-year. General medicines sales were £2.7bn, up 9%.

Analysts will closely scrutinise GSK’s pipeline of products now that the company is a pure-play pharmaceutical following the creation of Haleon. In Q1 results, GSK said it had a pipeline of 68 vaccines and specialty medicines, with four anticipated 2023 approvals. As many as 17 treatments were in phase III trials or in the registration stage. 

GSK expects adjusted operating profit to increase between 10–12% for the full year 2023. For income seekers, GSK said it expects to pay a dividend of 56.5p this year.

CEO Emma Walmsley said GSK had made a “strong start to 2023” which had supported confidence in delivering medium and long-term growth ambitions.

What do the analysts think?

Despite posting growth across its business in Q1, GSK found itself near the bottom of the 19 pharmaceutical stocks that HSBC had initiated coverage on. Analysts at HSBC said that GSK’s lack of exclusive drugs, accounting practices and ongoing litigation over Zantac meant it was “not good value for money”. GSK joined Bristol-Myers Squibb[BMY] and Moderna [MRNA] as being among the stocks the bank gave a ‘reduce’ rating.  Towards the top was AstraZeneca [AZN.L], with the analysts liking the drugmaker’s diversified portfolio.

GSK has a 9.29 forward P/E and a 4% yield, according to data from Yahoo Finance. For comparison, AstraZeneca carries a forward P/E of 18.94. The stock is trading below its 1,416.68p 200-day moving average.

GSK has a median 12-month price target of 1,564p. Hitting this would mean 12.7% upside on Friday’s close.