After a prolonged downturn, British pharma goliath GlaxoSmithKline (NYSE:GSK) has finally started to recapture the imagination of Wall Street. The overwhelming majority of analysts covering the stock, for instance, have a favorable rating on Glaxo's shares right now, and large institutional investors have been slowly upping their positions in this downtrodden big pharma equity in recent quarters.    

So with Wall Street's modest change of heart in mind, I think it's worthwhile to consider if retail investors should also start to buy into Glaxo's slow-motion turnaround under CEO Emma Walmsley. 

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Glaxo's growth is on thin ice

Next year, Wall Street expects Glaxo to grow its top line by a modest 2.5%, thanks to three key regulatory approvals last year. Digging into the details, the biopharma grabbed regulatory approvals for the shingles vaccine Shingrix, the chronic obstructive pulmonary disease medicine Trelegy Ellipta, and the once-daily HIV pill Juluca in 2017.

As a result, Glaxo's vaccine, HIV, and respiratory franchises all appear to be solid growth drivers going forward. The company's consumer healthcare business is also forecast to contribute to its improving top line due, in part, to the recent $13 billion acquisition of Novartis' consumer healthcare unit.

Now, that's the good news. 

The bad news is that Glaxo's high-growth HIV business may already be in trouble. Point blank: Gilead Sciences (NASDAQ:GILD)has its sights set on stealing market share away from Glaxo's Tivicay and Triumeq, as well as blunting the impact of Juluca's entrance into the market, with its next-generation medicine Biktarvy. 

Unfortunately, Glaxo simply cannot afford to have its HIV franchise lose ground at this critical juncture. If it does, the company could see its modest levels of projected top-line growth evaporate overnight. This evolving battle between Gilead and Glaxo in HIV could therefore end up determining the company's outlook for perhaps the next three to four years. 

How does Glaxo's dividend stack up?

Although Glaxo's projected top-line growth doesn't stack up well against most of its big pharma peers, the company does sport a ridiculously generous dividend program. With an annualized yield of 6.3%, for example, Glaxo has the richest payout among all large-cap healthcare companies right now. 

The catch here is that Glaxo has been funneling cash into its dividend at the expense of its pharma research and development spend of late, which isn't welcome news for a company that desperately needs new growth products. The company also hasn't done a particularly great job at maximizing the commercial launches of newly approved products over the last decade -- although this unfavorable trend might finally be coming to an end based on the fairly strong launches of both Shingrix and Trelegy Ellipta in more recent times. 

The take-home point here is that Glaxo may need to seriously rethink its dividend policy in light of its various problems in pharma. The modest growth from its consumer healthcare business, after all, isn't going to make much of an impact on Glaxo's troubling 258% trailing payout ratio going forward. To achieve that goal, Glaxo needs more high-value pharma products in the pipeline, and it needs those products to get off to a quick start upon approval.  

Is Glaxo's stock a buy?

Although Wall Street has clearly been changing its tune toward Glaxo under Walmsley's leadership, I'm not convinced this big pharma stock is a great buy here. The future of Glaxo's dividend is murky at best, and management needs to make solid steps toward rebuilding its pharma pipeline -- a move made all that much harder by the recent Novartis transaction. So, until Glaxo solves these outstanding problems in its all-important pharma segment, I'm content to watch this turnaround story from the safety of the sidelines.  

 

George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.