Do GSK’s fundamentals support its value proposition?

For most of the past two years, any examination of the Pharmaceutical industry has necessarily begun and ended with COVID-19 vaccines. Literally, of course, this isn’t true; diseases and viruses of all kinds don’t take a holiday during a pandemic, and so development of existing projects for any company in this industry hasn’t stopped, either. Nonetheless, the global impact of COVID disrupted the industry, social life, and business as we know it. Two years later, vaccines are readily available, but the long-term impact of COVID remains a question even as experts, and to be sure, the rest of us are anxious to look ahead to an endemic-phase shift in activity, rules, and guidelines.

In the U.S., most of the attention about the companies at the forefront of the race to development, distribute and administer vaccines was focused on companies like Pfizer, (PFE), Moderna (MRNA), and Johnson & Johnson (JNJ).

If you consider the global need for vaccines, it’s easy to understand that having a just a few available if insufficient, which is why global pharma companies are also worth paying attention to. One is British pharma giant GlaxoSmithKline PLC (GSK), who worked with multiple companies to combine their vaccine candidates with GSK’s adjuvant technology. An adjuvant can be thought of as a booster, as it can be used to enhance immune response, increasing both the strength and longevity of immunity versus the vaccine alone. It also enables higher production with less ingredients, enabling manufacturing at scale. Their efforts have produced both a vaccine and an antibody treatment, which combined have lifted the company’s sales over the past year.

From my perspective as a value-oriented investor, COVID vaccine development has been most useful simply because it gave me a reason to take a deeper look into GSK’s fundamental and value profile. This is a company with a broad, global product portfolio, with a number of over-the-counter brands that you and I are likely to recognize during a typical run through the grocery store. That means that, pandemic aside, the company is already well-positioned to benefit in the broadest sense from increased public awareness about health in general. Another interesting element to their current corporate structure are plans they announced to separate the company based on its Biopharma business, and its Consumer Healthcare businesses. The move should give each unit a better opportunity to stand on its own. That process is expected to be completed sometime in the middle of this year.

Technically speaking, GSK saw a sizable increase from March of last year to mid-January, rising from about $35.50 to $47 before following the broad market’s momentum lower to start the month of March. In the last several days, the stock appears to have stabilized enough to start building some bullish momentum off of latest support. Are the fundamentals strong enough to support a useful long-term value proposition at the current price? Let’s dig in to find out.

Fundamental and Value Profile

GlaxoSmithKline PLC is a global healthcare company. The Company operates through two segments: Pharmaceuticals and Vaccines. The Company focuses on its research across six areas: Respiratory diseases, human immunodeficiency virus (HIV)/infectious diseases, Vaccines, Immuno-inflammation, Oncology and Rare diseases. The Company makes a range of prescription medicines and vaccines products. The Pharmaceuticals business discovers, develops and commercializes medicines to treat a range of acute and chronic diseases. The Vaccines business provides vaccines for people of all ages from babies and adolescents to adults and older people. It has a portfolio of medicines in respiratory and HIV. Its Pharmaceuticals business includes Respiratory, HIV, Specialty products, and Classic and Established products. Its Vaccines business has a portfolio of over 40 pediatric, adolescent, adult, older people and travel vaccines. GSK has a current market cap of $105.2 billion.

Earnings and Sales Growth: Over the last twelve months, earnings increased by 11.3%, while sales increased by 11.26%. In the last quarter, earnings declined -31.6%while Revenues improved about 2.62%. GSK’s Net Income versus Revenue is healthy, with signs of pressure in the last quarter; over the last twelve months, Net Income was 12.86% of Revenues and weakened in the last quarter to 7.8%.

Free Cash Flow: GSK’s Free Cash Flow is healthy, at more than $9.5 billion. This does mark an increase over the past year, when Free Cash Flow was $8.59 billion, and $7 billion three quarters ago. The current number also translates to a Free Cash Flow Yield of 8.67%.

Debt to Equity: GSK has a debt/equity ratio of .96, which implies debt should be manageable. Their balance sheet shows a little over $6.2 billion (up from $5.1 billion three quarters ago) in cash and liquid assets against a little less than $28.2 billion in long-term debt. Servicing their debt is not a concern.

Dividend: GSK pays an annual dividend of $2.18 per share, which at its current price translates to an impressive yield of 5.35%.

Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to work with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term, fair value target around $70 per share. That means that GSK is significantly undervalued, with about 72% upside from its current price.

Technical Profile

Here’s a look at the stock’s latest technical chart.

Current Price Action/Trends and Pivots: The red diagonal line defines the stock’s upward trend from a low a year ago at around $35.50 to its high around $47 in January. It also provides the baseline for the Fibonacci retracement lines shown on the right side of the chart. After peaking at 447 in January, the stock has moved into a clear downward trend, consistent with the momentum of the broad market. That momentum picked up pace at the early part of this month, but has since rebounded off of a pivot low at around $39.50 and is now sitting a little above the 50% retracement line a little above $41, marking current support at that level, with immediate resistance expected between $42.50 and $43. A push above that level should have upside to about $45, while a drop below $41 has limited downside to the last pivot low at around $39.50.

Near-term Keys: GSK’s balance sheet strength is giving the company the resources it needs to keep pushing forward even while other pressures are in place on Revenue and Net Income. The company’s ability to maintain healthy Free Cash Flow is a sign of strength, and the fact that the stock is trading at a significant discount is also a very positive sign that could make the stock one to watch and to take seriously as a useful, long-term value opportunity. If you prefer to work with short-term trading strategies, you could use a continued push above $41 as a signal to buy the stock or work with call options, using $43 as a useful bullish profit target. If the stock falls below $41, you could also consider shorting the stock or buying put options, using $39.50 as a practical bearish profit target.

Trending Ideas

Featured Stocks On The Move

Daily Rundown
  • Restaurants, Streaming, Software, Retail

    Brinker International, Inc. (EAT) Brinker International, Inc. operates popular restaurant chains, including Chili’s Grill & Bar and Maggiano’s Little Italy. The company focuses on providing value-driven dining experiences and maintaining... Read More

  • Banking, Footwear, SPAC, Leisure Travel

    Barclays PLC (BCS) Barclays PLC is a multinational investment bank and financial services company headquartered in the UK. The firm offers a wide range of services, including retail banking, wealth... Read More

  • Fintech, Aviation, Consumer Goods, Fintech

    Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. is a financial technology company revolutionizing investment with its commission-free trading platform. It provides tools for trading stocks, ETFs, and cryptocurrencies, making financial... Read More

  • Mining, Networking, Banking, Energy

    Kinross Gold Corporation (KGC) Kinross Gold Corporation is a senior gold mining company with operations and projects across the Americas, West Africa, and Russia. The company focuses on delivering value... Read More

  • Fintech, Telecommunications, Mining, Industrial Supplies

    360 DigiTech, Inc. (QFIN) 360 DigiTech, Inc. is a leading fintech platform in China, offering consumer credit solutions and financial advisory services. The company leverages big data and artificial intelligence... Read More

  • Banking, Healthcare, Technology, Retail

    Triumph Bancorp, Inc. (TCBX) Triumph Bancorp, Inc. provides banking and financial solutions, specializing in transportation-focused lending and factoring services. The company leverages technology to streamline operations and enhance customer experience... Read More

  • Investment, Precious Metals, Financing, Asset Management

    Invesco Ltd. (IVZ) Invesco Ltd. is a global investment management company offering a variety of financial products, including ETFs, mutual funds, and retirement solutions. The firm emphasizes innovation and expertise... Read More

  • Manufacturing, Technology, Fintech, Social Networking

    Modine Manufacturing Company (MOD) Modine Manufacturing Company specializes in thermal management systems for automotive, HVAC, and industrial applications. The company focuses on energy-efficient solutions to meet sustainability and performance demands.... Read More



Top 3 Stocks in Leading Sectors
  • 3 Electric Power Stocks To Buy Now

    Empresa Distribuidora y Comercializadora Norte S.A. (EDN) Empresa Distribuidora y Comercializadora Norte S.A. (EDN) distributes electricity to Argentina’s Buenos Aires region. The company focuses on reliable energy supply, infrastructure upgrades,... Read More

  • 3 Investment Brokerage Stocks To Buy Now

    Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. operates a financial services platform offering commission-free trading in stocks, ETFs, and cryptocurrencies. Known for its user-friendly mobile app, the company focuses on... Read More

  • 3 Consumer Service Stocks To Buy Now

    FAT Brands Inc. (FAT) FAT Brands Inc. is a global franchising company that develops and manages a portfolio of fast-casual and casual dining restaurant brands. Known for its diverse offerings,... Read More

  • 3 Safety Stocks To Buy Now

    Digimarc Corporation (DMRC) Digimarc Corporation develops innovative digital watermarking and content identification technologies. Its solutions enhance product packaging, digital media, and supply chain transparency, providing companies with tools for brand... Read More

  • 3 Gold Stocks To Buy Now

    Royal Gold, Inc. (RGLD) Royal Gold, Inc. acquires royalties and streaming interests in precious metal mines, focusing on gold, silver, and copper. The company benefits from rising commodity prices without... Read More

  • 3 Aerospace/Defense Stocks To Buy Now

    OSI Systems, Inc. (OSIS) OSI Systems, Inc. specializes in designing and manufacturing electronic systems for security and healthcare applications. The company provides advanced screening, imaging, and critical care monitoring solutions... Read More

  • 3 Airline Stocks To Buy Now

    JetBlue Airways Corporation (JBLU) JetBlue Airways Corporation is a low-cost airline that provides flights to destinations across the United States, the Caribbean, and Latin America. Known for its customer-focused service,... Read More

  • 3 Tobacco Stocks To Buy Now

    Turning Point Brands, Inc. (TPB) Turning Point Brands, Inc. markets and distributes a range of branded consumer products, including Zig-Zag rolling papers and Stoker’s moist snuff. The company operates within... Read More