Is this star FTSE 100 stock set for take-off after Q1 results surprise?

GSK is a star FTSE 100 stock whose price has fallen over 15% in the past year, but its Q1 2023 revenue and profits beat estimates by a long way.

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Image: GlaxoSmithKline

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GSK (LSE: GSK) is a world-class pharmaceutical company and a long-time star FTSE 100 stock under its previous name GlaxoSmithKline. Over the past year, its share price fell over 15%, which meant it was looking cheap to me. But it looks even cheaper now following the release of its Q1 results earlier today.

Revenues and profits beat expectations

Quarterly adjusted profit in Q1 was 37p per share on revenue of £7bn. Consensus expectations were for 33p per share and £6.5bn.

GSK’s key growth drivers were led by its shingles vaccine, Shingrix. This generated £833m in revenues, ahead of expectations of £829m.

Big turnover, profit and EPS forecasts

GSK also affirmed its earlier guidance for increases in turnover, profit, and earnings per share (EPS) this year. Turnover is expected to rise by 6%-8%, adjusted operating profit by 10%-12%, and adjusted EPS by 12%-15%. A dividend of 14p per share was also confirmed for Q1 2023, with 56.5p expected for the year.

The increases will mainly come from growth in two of its three core business lines. Turnover in Vaccines is expected to increase in the mid-teens percent. Speciality Medicines in mid-to-high single-digits. And turnover in General Medicines is expected to be flat to slightly down.  

Covid hangover should clear

I think GSK’s share price has suffered since it was left behind in the race for a Covid vaccine. Price-to-earnings (P/E) ratios give a good idea of how much growth investors expect from a company going forward.

GSK has a P/E of around 13, while its peer AstraZeneca (a vaccine producer) has one of about 71. GSK shares had dividend yields in 2022 of 3.1%, in 2021 of 4%, and in 2020 of 4.8%. AstraZeneca’s was 2.1%, 2.7%, and 3.1%, respectively. And GSK’s share price has decreased by 18% in the last 12 months, while AstraZeneca’s has increased by 15%.

New products to drive sales

Part of this price discrepancy might be attributed to AstraZeneca’s larger pipeline of new products. It has 179 new products in its pipeline, while GSK has 68.

However, size is not everything, and GSK is confident about the potential sales for its new lines. One particular focus for GSK is on the RSV vaccine market targeting the expanding older adult population. Analyst estimates are that the RSV vaccine market could be worth $6bn and GSK could take around a third of it.

To expand its presence in the respiratory medicine sector, it bought Bellus Health earlier this month. GSK believes that the company has a potential world-leading treatment for chronic coughs. It expects this to be a big seller through to 2031, and to add to adjusted EPS from 2027.

Aside from this year’s increased turnover, profit, and EPS forecasts, I think these new products will drive sales longer-term. I do not expect GSK’s share price to reach AstraZeneca’s level, but I think it will trend higher on these factors.

There are risks in the share price for me though. Pharmaceutical companies spend much time and money on product development and if one fails then it is a huge setback. They are also open to legal action against them if products cause problematic side effects.

However, I am happy to keep my long-held holdings in GSK, and to look for any further price declines to buy more.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Simon Watkins has positions in AstraZeneca Plc and GSK. The Motley Fool UK has recommended GSK. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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