GSK’s (LSE: GSK) share price has rallied strongly since its full-year 2025 results were released on 4 February. However, the market is still seriously undervaluing the pharmaceutical giant’s improving fundamentals and long-term earnings power, in my view.
The group is delivering consistent growth across Specialty Medicines and Vaccines, supported by rising margins and strong cash generation.
So, how high do I think the shares will go?
Strong earnings growth
Earnings (‘profits’) growth is ultimately what powers any company’s share price over the long run. A risk here for GSK is litigation arising from any of its products, which could be costly to deal with. Even so, the firm forecasts core operating profit growth of 7%-9% this year and more than £40bn in sales by 2031.
The single biggest driver here is likely to remain Specialty Medicines, which delivered 17% year-on-year growth in 2025. Importantly for GSK’s long-term outlook, the division is margin‑accretive and high‑growth. It is also central to its repositioning following the 2022 demerger of Haleon. GSK’s focus as a pureplay pharma and vaccines business means a cleaner structure that should support better margins and more predictable cash generation.
Meanwhile, the HIV portfolio remains a major profit centre with strong brand loyalty and long product cycles. Sales surged 11% year to £7.7bn, with long-acting treatments and pre-exposure prophylaxis (medicines taken before someone is exposed to HIV) being key future growth drivers.
Even longer term, the oncology pipeline is accelerating, with 5 FDA approvals last year.Two major new approvals are expected so far this year — bepirovirsen forchronic hepatitis B, and tebipenem for complicated urinary tract infections.
How were the results?
Turnover rose 7% to £32.667bn, driving core operating profit 11% higher to £9.783bn. This reflected strong momentum in Specialty Medicines and Vaccines, supported by higher royalty income and disciplined reinvestment in the advancing R&D pipeline.
Core operating margin increased 1.1 percentage points year on year to 29.9%. This was driven by the mix shift towards higher‑margin Specialty Medicines and Vaccines, alongside continued operating leverage. And core earnings per share rose 12% to 172p.
Cash generated from operations increased 14% to £8.943bn. This underlined the group’s strong cash conversion and can be a major driver for growth in itself.
How high could the shares go?
A discounted cash flow (DCF) analysis identifies where a stock should trade by projecting future cash flows and ‘discounting’ them back to today. Analysts’ DCF modelling varies — some more conservative than mine, others less so — depending on the variables used.
However, based on my DCF assumptions — including a 7.2% discount rate — GSK shares could be 50% undervalued at their current £22.13 price.
This implies a ‘fair value’ of around £44.26 per share — double where the stock trades today.
The gap between GSK’s price and value is crucial for long-term investors. This is because asset prices tend to converge to their fair value over time.
Consequently, the huge gap here suggests a potentially terrific buying opportunity to consider today if those DCF assumptions hold.
My investment view
Given the extreme DCF undervaluation, supported by strong earnings growth prospects, I will be adding to my holding in the stock soon.
I also think the shares are worthy of other investors’ attention for the same reasons.
