GlaxoSmithKline’s (LSE: GSK) shareholders have had a rough ride over the past 12 months.
After rocketing to a high of 1,642p at the beginning of April on bid chatter, Glaxo’s shares have since plunged to a three-year low, following the wider FTSE 100 lower. Year-to-date Glaxo’s shares have slumped 7.1% excluding dividends while the FTSE 100 has fallen 6.5%, excluding dividends.
However, Glaxo’s performance could be set to improve throughout the rest of the year as there are a number of catalysts on the horizon, which have the potential to re-energise the company’s share price.
Number of catalysts
The first key catalyst that is likely to boost Glaxo’s share price is the payment of a special dividend later this year. Glaxo is planning to return an additional £1bn of the proceeds from last year’s Novartis transaction to investors alongside the company’s fourth-quarter dividend payment.
A cash return of £1bn is around 20p per share, and the market always pushes up a company’s share price ahead of a special dividend. Including the fourth quarter payout, Glaxo is set to payout around 40p per share to investors during next three months.
What’s more, there’s also a chance that Glaxo’s management could bring forward the company’s first and second quarter dividend payments for next year, helping investors work their way around the new dividend tax laws set to come into force next year.
Upbeat third and fourth quarter results will also help push Glaxo’s shares higher towards the end of the year. Indeed, analysts and investors alike are waiting to see Glaxo’s turnaround strategy start to take hold, and when evidence of this starts to appear, it’s likely a wave of buying will drive Glaxo’s shares higher.
Glaxo’s second quarter results did shed some light on the company’s turnaround progress, but there’s still much to be done. The integration of Novartis’ assets and restructuring plans were on track. Group turnover increased 1% in the first half, and by 2% during the second half of the second quarter. If the company can continue to push sales gradually higher throughout the second half of the year, confidence will return.
Also, alongside the company’s third and fourth quarter results, Glaxo will be updating the market about the progress of its product pipeline, which is the best in the business. The company has 258 new products under development more than any other big pharma group. Around 40 of these products are in advanced clinical trials and management expects at least half of its drugs currently under development will be on the market by 2020.
Price target
There are plenty of catalysts ahead that could drive Glaxo’s shares higher before the end of the year, but will they be enough to drive the share price back to 1,600p?
Well, it is possible. Glaxo needs to prove to the market that its dividend yield of 6.2% is here to stay. If management is able to prove that the payout is sustainable, the company’s shares will win favour with income investors, who will keep buying until the yield returns to a more normal level of around 5%. Glaxo’s shares would have to hit 1,600p before the yield reached this level.
