What’s going on with the GSK share price as Q1 profit falls?

The GSK share price pushed upwards in early trading on Wednesday despite the pharmaceuticals giant registering falling profits in Q1.

| More on:
Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The GSK (LSE:GSK) share price has performed rather well in recent months, and this strong performance is likely to continue following the company’s Q1 report. Let’s take a closer look.

Q1 profits fall

On Wednesday (1 May), GSK announced its results for the first quarter, and it was a mixed bag. The British pharma giant said sales rose 10% to £7.4bn but total operating profit fell 18% to £1.49bn. The company blamed falling operating profit on higher charges relating to contingent consideration liability (CCL).

However, on a positive note, the company raised its guidance for the year. And the market likes it when firms do that. GSK said it had raised its guidance on the back of strong sales across all products, especially vaccines and speciality medicines. 

Positive catalysts

It also pointed to a successful royalty dispute over Zejula — a treatment for advanced ovarian cancer — that boosted results for the quarter and will likely contribute strongly to income for the year.

In addition to the above, GSK pointed to some more positive catalysts. CEO Emma Walmsley noted four pipeline products that had delivered strong results in phase three trials and were positively contributing to prospects within its infectious diseases, HIV, respiratory/immunology and oncology businesses.

Moving forward, GSK expects 2024 turnover growth towards the upper end of its 5% to 7% range, and core operating growth between 9% and 11%. That’s up from 7% to 10% as previously stated. Earnings per share guidance was also moved from 6% to 9% up to 8% to 10%.

Is the stock good value?

There are several ways to work out how much a company’s stock should be worth. But it’s often worth starting off by looking at analysts’ forecasts, and the consensus of all analysts covering the stock.

The average target price for GSK is £20.07, and that’s around 16.9% above the current share price. That’s a good sign. There are currently 12 Buy ratings, six Hold ratings, two Underperform ratings, and one Sell rating — also positive.

Of course, there’s something to bear in mind here. Analysts don’t update their share price targets all the time. So, they can get outdated quickly, especially if a company raises its guidance in the meantime. It can often be prudent to discard analysts’ ratings that are more than three months old.

From a valuation perspective, GSK certainly doesn’t look expensive at 15.4 times forward earnings. Companies in this sector tend to trade at high multiples given the promise of their R&D pipelines and long-term demand for vaccines, medicines, and healthcare.

However, this attractive valuation also reflects the fact that GSK is still battling lawsuits concerning Zantac, a heartburn drug, that plaintiff’s claim caused cancer. GSK remains adamant that the drug doesn’t.

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.

James Fox has no positions in any of the companies mentioned. 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.

More on Investing Articles

Investing Articles

If I’d bought Rolls-Royce shares 2 years ago here’s what I’d have now – it’s staggering!

The Rolls-Royce share price performance has been so astonishing that Harvey Jones is struggling to get his head around it.

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Where will the BP share price go next? Here’s what the experts say

Some big investing names are backing the oil business. I take a look at what that might mean for the…

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

Where is the UK stock market headed for the rest of 2024?

I've been searching high and low to uncover insightful opinions from professionals about where the UK stock market is headed…

Read more »

Investing Articles

How much passive income could I earn if I invest £200 a month in a Stocks and Shares ISA?

What's the best way to secure some long-term passive income from modest monthly investments? Here's what buying dividend stocks could…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s why I think the Legal & General share price is one of the biggest bargains on the FTSE

With a bulky yield and cheap valuation, this Fool thinks the Legal & General share price looks like one of…

Read more »

Investing Articles

1 small-cap stock with a 3.1% yield to consider for a Stocks and Shares ISA

Our writer highlights an interesting little British stock that might well warrant a place in his Stocks and Shares ISA…

Read more »

Investing Articles

Should I follow the chief executive into these UK shares right now?

This UK company director just bought shares in the business he manages – is the timing right and should I…

Read more »

Elevated view over city of London skyline
Investing Articles

I’m considering shares in this FTSE 250 investment trust while it’s trading at a discount

With this FTSE 250 investment trust trading at a discount to NAV, this Fool thinks it's a bargain. Not to…

Read more »