27th Sep 2022 10:06
(Alliance News) - Analysts at Shore Capital Markets on Tuesday backed GSK PLC's near and medium-term prospects, but noted the pharmaceutical firm has some work to do to convince the market of its long-term potential.
GSK shares have a decent "upside", the broker said, but noted its stock has taken a hit recently. GSK shares are down roughly 20% since the start of the year and have fallen by roughly a quarter since the end of July, amid worries related to Zantac litigation.
The stock was down 0.1% at 1,324.00 pence each in London on Tuesday morning. Shore has a 'buy' rating for the stock, as well as a GBP18 fair value, up 36% from GSK's current share price.
GSK, among others, came under pressure amid worries that heartburn treatment Zantac causes cancer. Its consumer healthcare spin-off Haleon PLC was also hit, as were French firm Sanofi SA and US firm Pfizer Inc.
"We view the recent Zantac litigation-related underperformance as overdone and believe the tangible value disconnect that exists between its near-term earnings power and the current rating is unwarranted," Shore said.
GSK is targeting compound annual revenue growth of over 5% between 2021 and 2026. This guidance "looks readily achievable", Shore said.
Shore noted GSK's vaccines and HIV treatment arms are progressing strongly. Together, they account for roughly half of the company's revenue.
While the growth targets up to 2026 look reasonable to Shore, it's GSK's subsequent outlook which the market may not be as convinced about.
"To warrant sector parity, or even a premium rating, GSK must inspire confidence that it can deliver sales growth beyond 2026. Clearly, the market lacks conviction on GSK's ability to deliver a pipeline of assets that can provide sustainable growth as it navigates patent expiries for key products and franchises," Shore added.
On Monday, GSK named Julie Brown as its next chief financial officer, succeeding Iain Mackay. Brown is currently chief operating and financial officer at luxury fashion retailer Burberry Group PLC.
Brown will join in April of next year to work on transitioning responsibilities with Mackay, who will step down in May.
Analysts at Barclays said the general reception of the announcement was "positive".
Barclays has an 'equal weight' rating for GSK, with a GBP18 price target. The investment bank has a 'positive' rating for the wider European pharmaceuticals sector.
By Eric Cunha; [email protected]
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