Key points
- GSK is a value and high-yielding stock among pharmaceutical stocks.
- The company’s new RSV vaccine and Shingrex’s dominance support the results.
- The low-beta stock is trading at critical support, showing signs of rebound and could support a rally this winter.
- 5 stocks we like better than GSK
GSK NYSE:GSK is not immune to the patent cliff facing the pharmaceutical industry, but it is as well prepared as it can be. The company faces less impact than others, still has years before the impact is felt, and is now on track to grow and make up for lost revenue when the patent expires.
With this in mind, the stock is trading at a low gain of 9X and yields a solid 4%, making it an attractive play in the pharma/healthcare segment. Add in the low beta of 0.66 and GSK stock could be just what the Dr ordered for winter 2023/2024. Low beta and high yield can help offset market downturns and reduce volatility within a portfolio while increasing its long-term performance.
GSK had a strong quarter; new products drive sales
GSK had a solid quarter, with revenue up 10% from last year on an FXN basis and ahead of Marketbeat.com analyst consensus. Revenue was driven by a 33% increase in vaccine sales, supported by the Arexvy approval and only partially offset by COVID-related sales declines.
Arexvy is the 1st RSV vaccine approved by the FDA, giving the company an advantage over its competitors. Pfizer’s vaccine has also been approved, but early indications are that Arexvy has the lion’s market share.
Sales of Arexvy exceeded £0.7 billion, closing in on established treatment Shingrex at £0.8 billion. Shingrex’s growth was 15% for the quarter due to its privileged position. It is one of two shingles vaccines available in the United States and the only one in use today.
The news on margins is also supportive of rising stock prices. The company expanded its gross and operating margin thanks to Arexvy’s growth and sales, which are expected to gain traction in the coming quarters. The company expects peak sales to exceed $3 billion per year, a figure that will continue until a better drug is launched, and that might be a conservative estimate.
Regardless, the company expanded its adjusted operating margin by 15% and adjusted EPS increased by 17%, beating consensus and reinforcing growth and dividend outlook. Executives raised their forecasts for both the top and bottom lines of the fourth quarter to a range whose low end is consistent with the previous high, and it is likely that the guidance will be conservative. Shingrex and Arexvy are gaining ground. Perhaps more importantly, FCF growth and cash flow conversion exceeded 100%.
GSK is a high-yielding stock in the healthcare sector
GSK the dividend can be variable quarterly but is reliable and offers a high return compared to other companies in the pharmaceutical group. The 2023 payout is on track to exceed 4%, with shares trading near critical support levels and long-term lows. The balance sheet is healthy, with over £8 billion of cash and securities and manageable debt. Leverage is less than 1.5 times equity, with cash flow and margins on the mend.
THE analyst activity at GSK this year is uncertain at best. There are 7 current ratings, but indications are mixed with upgrades, price target increases, price target decreases, and a recently (in July) launched reduction. The takeaway is that little coverage has been published since Arexvy launched to include post-Q3 activity. The few stocks that appear are repeat positions that assume fair value for the stock at current trading levels.
Technical outlook: GSK at its lowest
Price action on GSK broke out in September on good news, but has since retreated to critical support. Today, the market is showing signs of support at a critical level and could continue to rebound. In this scenario, the market could break above the 150-week EMA and test resistance at the 150-day EMA. If this level is breached, a sustained rally could push this market even higher. Otherwise, GSK could remain range-bound near current levels until more news becomes available.
Before you consider GSK, you’ll want to hear this.
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