The GSK (LSE: GSK) share price really makes me scratch my head. Or, rather, its valuation does.
Investors have pushed AstraZeneca shares up 90% in the past five years. GSK, though, is up just 3% in the same time, well behind the FTSE 100‘s 9%.
Covid effect
It has to be the Covid effect. After all, only one of the two has a Covid vaccine named after it.
But there’s a big difference in their valuations. AstraZeneca’s price-to-earnings (P/E) ratio is over 30, with just 10 to 11 for GSK.
Oh, and their dividend yields are well apart too. At AstraZeneca, the forecast is at just 2.2%. And GSK has just just posted a 3.7% yield for 2023.
On those alone, the GSK share price looks too low to me. And FY 2023 results don’t change my mind.
Sales and earnings
GSK recorded a 5% rise in total 2023 sales, to £30.3bn. Perhaps more tellingly, ex-Covid sales rose by 14%. A lot of that is in vaccines, with shingles vaccine Shingrix seeing 17% growth.
The respiratory virus vaccine Arexvy also racked up £1.2bn in sales, as one of “4 major product approvals” in the year.
All this helped boost earnings per share by 11%, and led to a dividend of 58p per share. The board already says it expects to pay 60p for 2024.
Upgraded outlook
GSK has lifted its long-term outlook. The five-year outlook from 2021 to 2026 has been lifted to more than 7% per year sales growth, with more than 11% per year for adjusted operating profit.
The firm also reckons it should see more than £38bn in annual sales by 2031. And isn’t it great to see a major FTSE 100 company with a focus on the long-term like that?
It has to, really, given the length of the drug development process. But I see it as a plus for private investors.
If we’re in it for the long term, then isn’t it better to put our cash into businesses that are aligned with the long term?
Dangers
The nature of the business does bring its own risks, though. GSK, along with AstraZeneca, faced a crisis a few years ago due to the expiry of some key patents.
Blockbuster drugs can provide a big chunk of a pharma firm’s income… until they don’t, and anyone can then make and sell them cheap. HIV treatment dolutegravir will be hit by that soon.
The expense and uncertainty of the development process means that replacements from the pipeline are not guaranteed.
And while CEO Emma Walmsley said “We are now planning for at least 12 major launches from 2025,” AstraZeneca is still ahead when it comes to drug candidates in the pipeline.
Time to buy?
On balance, based mainly on valuation, only one of the two big FTSE 100 pharma firms makes it on to my buy candidates list for 2024. And it’s GSK.
AstraZeneca might be a fine investment, but GSK looks better value now.
And a pharma investment is for life, not just for Covid, right?
