Innovative Specialty Medicines And Vaccine Success Steer Future Growth Amid Challenges

Key Takeaways

• Strong growth in Specialty Medicines and new product launches expected to drive revenue, particularly in HIV, Respiratory, and Oncology.
  
• Expanding portfolio with new vaccines and HIV advancements anticipated to impact earnings and market share positively.
  
• GSK faces challenges due to reliance on the U.S. market, changing vaccine guidelines, pricing pressures, and loss of earnings from external partnerships impacting revenue.

Catalysts

Engages in the research, development, and manufacture of vaccines, and specialty and general medicines to prevent and treat disease in the United Kingdom, the United States, and internationally.

• GSK is experiencing strong growth in Specialty Medicines, with a focus on HIV, Respiratory/Immunology, and Oncology, expected to continue driving revenue growth with new product launch opportunities leading to increased sales.
  
• Progress in GSK's pipeline, including 11 positive Phase III readouts and anticipated launches of five major new products in 2025, is expected to significantly impact future earnings by expanding the portfolio and enhancing revenue streams.
  
• Continued advancements and market adoption in GSK's HIV portfolio, particularly in long-acting medicines, are projected to drive higher margins and revenue growth due to increased market share and strong patient demand.
  
• The rollout of Arexvy and Shingrix vaccines internationally and the expected medium-term market penetration are anticipated to bolster future revenue, despite current pressures on U.S. vaccine sales impacting near-term growth.
  
• GSK's focus on portfolio development and R&D, combined with ongoing bolt-on business development, aims to support competitive growth in Specialty and Vaccines, impacting long-term revenue and operational efficiency.

GSK Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GSK's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 20.4% in 3 years time.
• Analysts expect earnings to reach £7.3 billion (and earnings per share of £1.77) by about November 2027, up from £2.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £3.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2027 earnings, down from 22.4x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.99%, as per the Simply Wall St company report.

GSK Future Earnings Per Share Growth

Risks

• GSK's reliance on the U.S. market for RSV vaccines presents risk due to recent ACIP guidelines that restricted target populations, which may limit near-term revenue growth.
  
• Lower sales of Shingrix and Arexvy vaccines, partially due to changes in guidelines and prioritization of COVID-19 vaccines, could affect GSK's revenues and net margins.
  
• The potential impact of the U.S. Inflation Reduction Act and subsequent pricing pressures introduce uncertainties that could reduce revenues and profit margins.
  
• The loss of royalties from Gardasil significantly impacted profit growth in the quarter, pointing to potential vulnerability in earnings stability due to external partnerships.
  
• Although litigation risk related to Zantac has been mostly resolved, the financial impact of associated charges was significant, which can affect future net earnings and cash flow.

Valuation

• The analysts have a consensus price target of £19.07 for GSK based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £34.79, and the most bearish reporting a price target of just £14.2.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be £35.6 billion, earnings will come to £7.3 billion, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of £13.8, the analyst's price target of £19.07 is 27.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.