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GlaxoSmithKline plc Surges On ViiV Spin-Off Plans And Upbeat Revenue Guidance

Shares in GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) are up by as much as 2.5% today after the company released its fourth-quarter results. While they showed a fall in the company’s top line, there is at least a degree of optimism now present regarding the future prospects for the company, as it seeks to move on from what have been a challenging few years.

So, even though revenue was down by 5% in the quarter, 3% for the full year and is expected to continue to disappoint in the first half of the year as the US in particular poses a headwind, the second half of the year is forecast to mark a significant improvement. For example, GlaxoSmithKline is anticipating that it will start to regain market share for its respiratory drugs after sales of Advair continued to fall and new drugs, Breo and Anoro, were slower than expected.

Furthermore, the company has initiated a review of its ViiV Healthcare division (which focuses on HIV medicines) and is mulling over a 2016 spin-off, with a decision set to be reached in the next few months. If it goes ahead, this move could improve sentiment in GlaxoSmithKline and provide support for its share price, as ViiV has very strong growth potential.

Meanwhile, GlaxoSmithKline’s all-important cost cutting programme remains on track, with around £400m of efficiencies made during the course of 2014. And, with earnings coming in slightly above market forecasts (at 27.3p per share versus forecasts of 25.9p per share), it would not be a major surprise for investor sentiment to continue to tick upwards during the next few weeks.

Looking Ahead

Clearly, GlaxoSmithKline is going through a period of significant change and, as such, its share price could remain relatively volatile in the near term. However, it remains a company with huge potential, as evidenced by the prospect of a ViiV spin-off, as well as the potential for an asset swap with Novartis.

Furthermore, it still offers excellent value for money at its current price level. This is perhaps evidenced best by its dividend yield, which currently stands at an incredible 5.4%. This indicates that it is an excellent income play, but also that its shares are very attractively priced right now.

Certainly, top-line growth may splutter in the short run but, with an improving pipeline of new drugs and the potential for significant cost savings, its bottom line could surprise on the upside over the medium to long term. As such, it could be worth buying at the present time – especially if you are a long term investor.

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Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.