Positive Phase III Results Will Bring Blenrep And Depemokimab Approvals In 2025

Key Takeaways

• GSK's strategic focus on specialty medicines, vaccines, and oncology, coupled with robust clinical development, suggests strong future revenue and earnings growth.
  
• Shareholder returns are set to improve through a notable share buyback and sustained dividend growth, boosting EPS and investor value.
  
• Challenges in vaccine sales and competitive pressures in specialty medicines and HIV segments may impact GSK's growth, revenue stability, and profitability.

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's restructuring, following the demerger, has created a platform for growth through increased investment capacity in specialty medicines and vaccines, which is expected to drive revenue growth in the coming years.
  
• The growth potential from GSK's pipeline, with five new product approvals expected in 2025 and 14 major opportunities pre-2031, indicates strong future revenue and earnings growth, particularly from specialty medicines such as Blenrep and depemokimab.
  
• GSK's commitment to prioritizing investment in RI&I and oncology, alongside their extensive clinical development with positive Phase III readouts, suggests improved revenue and earnings through a robust and innovative portfolio.
  
• The anticipated mid
• to high-single-digit growth for their vaccines business in the medium and long term, supported by international momentum for products like Arexvy, suggests future stable revenue contributions despite short-term headwinds.
  
• GSK's plans to return excess capital to shareholders via a £2 billion share buyback, alongside maintaining strong dividend growth, is expected to enhance EPS and provide attractive shareholder returns.

GSK Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GSK's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.2% today to 19.9% in 3 years time.
• Analysts expect earnings to reach £7.1 billion (and earnings per share of £1.77) by about March 2028, up from £2.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £6.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.8x on those 2028 earnings, down from 23.8x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 28.6x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

GSK Future Earnings Per Share Growth

Risks

• There are ongoing challenges with vaccine sales due to external pressures in key markets like the U.S. and China, which could impact overall revenue and undermine future growth predictions.
  
• Shifts in U.S. vaccine policies and potential changes in vaccination uptake could contribute to revenue volatility, impacting short-term financial performance in this segment.
  
• The recent performance of Arexvy and Shingrix, along with moderated forecasts for vaccine penetration, highlight potential hurdles in achieving projected long-term revenue targets.
  
• Competitive pressures, particularly in specialty medicines and HIV segments, introduce risks to market share and could impact expected growth rates, affecting earnings.
  
• Headwinds from pricing impacts, such as the Inflation Reduction Act, could pressure margins and growth, impacting the profitability of key product lines like HIV treatments.

Valuation

• The analysts have a consensus price target of £17.081 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 £26.5, and the most bearish reporting a price target of just £11.9.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £36.0 billion, earnings will come to £7.1 billion, and it would be trading on a PE ratio of 11.8x, assuming you use a discount rate of 6.4%.
• Given the current share price of £15.05, the analyst price target of £17.08 is 11.9% 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.