Is GSK’s 34% 2025 Rally Justified by Cash Flow and Earnings Prospects?

• If you have been wondering whether GSK is still good value after its strong run, you are not alone. This piece will walk through what the current share price might really be implying.
• With the stock at around £18.26 and up 1.3% over the last week, 2.0% over the past month, and 34.1% year to date, the recent momentum suggests investors are reassessing both its growth prospects and risk profile.
• Recent headlines have focused on GSK sharpening its focus on vaccines and specialty medicines, including continued progress in respiratory and shingles portfolios. This has helped reinforce its positioning as a more streamlined, innovation led pharma player. At the same time, ongoing updates around legacy legal overhangs and product pipelines have shifted sentiment, which may help explain why the market is more willing to pay up for its future cash flows today.
• Even after this rally, GSK posts a valuation score of 5/6 on our checks, suggesting it still looks undervalued on most metrics. In the next sections we will unpack what that means across different valuation approaches, before finishing with a more holistic way to think about what the shares might be worth.

GSK delivered 42.1% returns over the last year. See how this stacks up to the rest of the Pharmaceuticals industry.

Approach 1: GSK Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth by forecasting the cash it can generate in the future and then discounting those cash flows back into today’s money.

For GSK, the latest twelve month free cash flow is about £5.1 billion. Analysts expect this to grow steadily, with Simply Wall St combining their forecasts and its own extrapolations. On this basis, free cash flow is projected to reach roughly £7.6 billion by 2029, and to continue rising towards the end of the next decade as the vaccines and specialty medicines pipeline matures.

Using a 2 Stage Free Cash Flow to Equity model, these future cash flows are discounted back to arrive at an estimated intrinsic value of about £42.94 per share. Against a current share price of around £18.26, the model implies the stock is roughly 57.5% undervalued. This suggests investors are still not fully pricing in GSK’s future cash generation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests GSK is undervalued by 57.5%. Track this in your watchlist or portfolio, or discover 908 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for GSK.

Approach 2: GSK Price vs Earnings

For a profitable business like GSK, the price to earnings ratio is a useful way to gauge what investors are willing to pay for each pound of current profit. In general, faster growth and lower perceived risk justify a higher multiple, while slower growth or greater uncertainty usually cap what the market is prepared to pay.

GSK currently trades on a PE of about 13.3x, which is below both the wider Pharmaceuticals industry average of roughly 22.8x and the closer peer group at around 17.2x. Simply Wall St goes a step further by estimating a company specific Fair Ratio, which is the PE you might reasonably expect once you factor in GSK’s earnings growth outlook, margins, industry, market cap and risk profile. For GSK, that Fair Ratio is 26.0x.

Because the Fair Ratio is tailored to GSK’s fundamentals rather than relying solely on blunt peer or sector comparisons, it can provide a more nuanced view of value.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your GSK Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are simply your story about a company, translated into a set of assumptions for its future revenue, earnings, margins and, ultimately, fair value.

A Narrative on Simply Wall St connects three things: the business story you believe, the financial forecast that flows from that story, and the fair value those numbers imply. It then compares that fair value with today’s share price to help you decide whether GSK looks like a buy, a hold or a sell.

Because Narratives live inside the Simply Wall St Community page, they are easy to create and update. They automatically refresh when new information such as earnings, FDA decisions or major news is released, so your view can evolve as GSK’s situation changes.

For example, one GSK Narrative on the platform currently assumes a fair value of about £78 per share based on rapid growth and expanding margins, while another sees a fair value closer to £18. By exploring these different Narratives side by side you can quickly understand how different perspectives on GSK’s pipeline, litigation risks and pricing power lead to very different target prices and decisions.

Do you think there's more to the story for GSK? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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