Will the GSK share price keep climbing in May?

GSK’s share price is up from its March lows, but the firm is still the biggest FTSE 100 faller over 12 months. Roland Head looks at the latest news.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A GlaxoSmithKline scientist uses a microscope

Image: GlaxoSmithKline

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 GlaxoSmithKline (LSE: GSK) share price made further gains in April after activist investor Elliott Management took a multi-billion-pound stake in the group. The FTSE 100 pharma giant’s share price is now up by more than 12% from the lows seen at the start of March. However, the GSK share price is still 20% lower than it was a year ago.

Today’s first-quarter results revealed an 18% slump in revenue, which dropped to £7.4bn for the three-month period. Management confirmed existing guidance for a fall in profits in 2021. However, the outlook for 2022 and beyond looks much stronger to me. I think Elliott may be right to sense an opportunity here.

The wrong kind of vaccines

GlaxoSmithKline is one of the world’s largest vaccine producers. But the company’s Covid-19 vaccine wasn’t an early success and hasn’t yet made it into production. That’s not a big problem in itself — many new medicines are unsuccessful.

What is a problem for Glaxo is that many regular vaccination programmes have been put on hold while Covid-19 vaccination has been prioritised. As a result, revenue from vaccine sales fell by 32% to £1.2bn during the first quarter of this year. Sales of Shingrix, the company’s shingles vaccine, were down by 47%.

I’d guess that many of these routine vaccinations will be made later this year, rather than being skipped. But one area that’s unlikely to catch up is the consumer healthcare division, where sales dropped 19% to £2.3bn during the first quarter.

A winter of social distancing and lockdown means that fewer people than usual had colds and flu. This hit sales of popular over-the-counter medicines. GSK says that sales performance also suffered because consumers didn’t stage a repeat of last year’s first-quarter panic-buying.

2022 looks better

These numbers certainly aren’t great. But three months is a short period of time for any business. GSK’s share price hasn’t moved following today’s results. This suggests to me that the numbers are as expected and that the market is looking ahead.

Management guidance certainly seems more positive for next year. CEO Emma Walmsley said that “meaningful improvements” are expected in both sales and profit margins. Analysts’ forecasts ahead of today’s results show revenue rising by 5% in 2022, with pre-tax profit rising by 12%.

These forecasts price the stock on 12 times forecast earnings, which looks affordable to me.

GSK share price: my view

It’s not yet clear what Elliott Management wants to change at Glaxo. Since taking charge in 2017, Ms Walmsley has increased spending on new drugs and begun preparations to separate the group’s consumer healthcare business. This is due to take place next year.

As a shareholder, I’m happy with this strategy. I’ve only got two real concerns. The first is that rebuilding the pipeline of new products might take longer and cost more than expected. This could be a long-term drag on the stock.

My other worry is that the total dividend is expected to fall next year, but the company hasn’t said by how much.

Ms Walmsley has promised to provide more detail on the firm’s strategy and outlook in June. In the meantime, I think GSK is doing the right things and is probably cheap. I’m not sure if GSK’s share price will climb much higher in May. But on a five-year view, I’d feel comfortable buying the shares at current levels.

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.

Roland Head owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. 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

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

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

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »