GSK (LSE: GSK) beat first-quarter earnings expectations Wednesday (29 April), but the shares responded with a 5% drop. Highlights from the update included:
- Oncology sales up 28%, Shingrix vaccine sales up 20%.
- Full-year guidance reaffirmed.
- Over £40bn sales targeted by 2031.
Some of the figures were a bit mixed, but I can’t help thinking investors might have missed the big picture. Let’s take a closer look.
Sales up, but…
Total sales in the quarter reached £7.6bn. But that did mean only a modest 2% rise — or 5% at constant exchange rates (CER). And though Shingrix led GSK’s vaccine sales, Arexvy vaccine sales fell 18%. And General Medicines dipped 6% at CER.
I don’t, however, really think that takes much of the edge off what looks like an impressive quarter. And I’m buoyed by what CEO Luke Miels had to say about upcoming prospects.
Alongside operational delivery, we are focused on execution and accelerating R&D. This is visible in filings we have achieved for bepirovirsen, our potential functional cure for hepatitis B; updated phase III plans for our oncology ADCs; and completed acquisitions for new pipeline assets: ozureprubart for food allergies, and HS235 for pulmonary hypertension.
These mostly target ailments on the rise in wealthy, developed, nations. Addressing those has to be a good thing, for so many reasons.
What should we expect?
A plan to exceed £40bn in sales by 2031 could make GSK shares a very nice long-term investment. And it could happily fuel a progressive dividend prospect. The company has 70p per share pencilled in for the full year, which would mean a 3.6% dividend yield on the price at the time of writing.
But what does management see happening in 2026? Full-year guidance (at CER) hinges on three key expectations:
- Turnover to increase between 3% and 5%.
- Core operating profit to increase between 7% and 9%.
- Core earnings per share to increase between 7% and 9%.
The shares look cheap
Investors had been piling into the stock after February’s FY25 results. I don’t see anything so far to take the shine off what was an impressive year, and GSK shares are still up 7% year to date. But enthusiasm appears to have cooled, with the price falling back.
Whatever’s turned investors off the stock, even if only briefly, I can’t really see it being valuation. Forecasts put the forward price-to-earnings (P/E) ratio at under 13. And that’s even with analysts predicting a 28% rise in earnings between 2025 and 2028.
There’s one major hurdle in the road ahead, though. GSK faces the expiry of a handful of blockbuster drug patents before the end of the decade.
Don’t panic!
Against that, it has a good number of very promising drugs reaching late trial stages. There’s nothing guaranteed, of course. And it’s good to be aware of the cost and risk of failure of any prospect.
But right now, I see this as a good time for long-term investors to consider GSK shares while the valuation looks a bit weak.
