GlaxoSmithKline stock target cut, rating downgraded on revised expectations By Investing.com

On Monday, UBS downgraded shares of GlaxoSmithKline (NYSE::LN) (NYSE: GSK) from Buy to Neutral, adjusting the price target to GBP15.80 from the previous GBP20.40. The decision by UBS comes amid revised expectations for the pharmaceutical company’s products and financial performance.

The downgrade reflects a mix of positive and less favorable factors influencing GlaxoSmithKline’s valuation. While acknowledging the company’s strong franchises and a solid balance sheet, UBS noted a compelling enterprise value to net present value (EV/NPV) that does not account for research and development (R&D) costs.

The firm’s reassessment includes lower forecasts for Arexvy and U.S. Shingrix revenues, leading to a reduced target price-earnings (PE) ratio relative to the healthcare sector. UBS has decreased its target PE for GlaxoSmithKline from 80% of the sector average to 65%, citing uncertainties surrounding the timing of the Zantac litigation resolution.

Despite the downgrade, UBS’s outlook recognizes potential supports for the stock. The firm anticipates possible weakness if GlaxoSmithKline’s management revises its guidance for flat U.S. Shingrix sales for the fiscal year 2024E during the second quarter. Nevertheless, the firm sees a dividend yield of approximately 4% and a limited R&D risk profile as factors that could underpin the company’s share value.

The revised UBS position puts its forecast for GlaxoSmithKline’s fiscal year 2028 earnings per share (EPS) 5% below the Visible Alpha consensus. This is despite higher expectations for the Shingrix vaccine’s performance in the Chinese market, which could contribute positively to the company’s financial results.

In other recent news, GlaxoSmithKline (GSK) has seen several noteworthy developments. The Advisory Committee on Immunization Practices (ACIP) has narrowed the eligible age group for GSK’s Arexvy vaccine, leading to a decrease in the vaccine’s sales forecast as reported by Citi. The firm also noted that the reimbursement for individuals aged 50-59 has been postponed. In light of these changes, Citi has adjusted its price target for GSK shares.

GSK has also secured exclusive rights to develop, manufacture, and commercialize mRNA vaccines for influenza and COVID-19 from CureVac. This agreement involves an upfront payment of €400 million with potential future payments totaling €1.05 billion, based on various milestones. The vaccines in question are currently in phase II and phase I clinical development.

The company reported a 100% response rate in a rectal cancer study with Jemperli, indicating a potential new treatment option. However, GSK is also facing litigation over Zantac, which has led to a £7 billion loss in market capitalization.

Goldman Sachs has initiated coverage on GSK with a Neutral rating, highlighting the company’s shift to focus on specialty medicines and vaccines. These are among the recent developments concerning GSK.

InvestingPro Insights

In light of UBS’s recent downgrade of GlaxoSmithKline, a closer look at real-time data from InvestingPro provides additional context for investors considering the company’s stock. With a market capitalization of $79.12 billion and a P/E ratio standing at 13.74, GSK presents a valuation that some investors may find appealing, especially considering its adjusted P/E ratio for the last twelve months as of Q1 2023 is even lower at 9.21. The company’s revenue growth has been positive, reporting a 5.69% increase over the last twelve months as of Q1 2023.

InvestingPro Tips suggest that GlaxoSmithKline boasts a high shareholder yield and that its stock is currently in oversold territory according to the RSI, which could indicate a potential buying opportunity. Moreover, the company is noted for its strong free cash flow yield, which is an important metric for investors looking for companies that generate sufficient cash. With 24 consecutive years of maintained dividend payments and a dividend yield of 3.8%, GSK could be attractive to income-focused investors.

For those interested in further analysis and tips, InvestingPro offers additional insights on GlaxoSmithKline, which can be found at https://www.investing.com/pro/GSK. Investors can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, gaining access to a wealth of financial information and analysis. With 9 additional InvestingPro Tips available, the platform provides a comprehensive view of the company’s financial health and prospects.

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