GSK (GSK 0.49%), a global healthcare company, initiated the separation of its consumer healthcare business, Haleon, last year, as part of its ambitious restructuring plan that CEO Emma Walmsley initiated in 2017. Walmsley's vision was to improve profitability, align dividends with cash flow, foster innovation through the use of cutting-edge tools like artificial intelligence and machine learning, and transform the company's culture.
Before Walmsley took charge, GSK faced challenges such as the patent expiry of its blockbuster respiratory drug Advair, the lack of a strong oncology portfolio, and a fairly thin clinical pipeline outside of respiratory medicines. Under her leadership, GSK has become a dominant player in infectious diseases, an entrenched market leader in respiratory diseases, and a promising contender in hematology/oncology, thanks to cost-effective strategic acquisitions like Sierra Oncology and Tesaro.
Is GSK stock worth buying now that this reorganization is nearly complete? Let's take a closer look at the company's strengths and weaknesses to find out.
Strengths and weaknesses
GSK stock offers investors an attractive valuation, an above-average dividend yield, reasonable growth prospects, and a broad-strokes approach to creating deep value. Turning to the specifics, GSK is trading at under 10 times projected earnings, which is well below its peer group average of 14.2. The company's shares are slated to pay an annualized dividend of approximately 3.86% in 2023. GSK's dividend yield is nearly two and a half times that of the average S&P 500-listed stock.
Through its strength-by-numbers approach to growth, GSK is poised to deliver high-mid-single-digit growth in 2024. Its most important growth drivers are newly approved respiratory syncytial virus vaccine Arexvy, shingles vaccine Shingrix, respiratory med Trelegy, long-acting HIV medicines like Cabenuva, and the recently acquired late-stage cough medicine camlipixant.
The company also isn't facing a major patent expiry at the moment, which should allow newer growth products to shine through from a top-line standpoint. On the deep value front, GSK could bring several branded products to market in hematology, respiratory diseases, and infectious diseases over the next few years. Its earlier-stage pipeline also harbors some intriguing candidates in nonalcoholic steatohepatitis, a common liver disease with no approved medications, and Alzheimer's disease.
GSK's biggest weakness is its lack of an all-star drug or drug candidate. That's not necessarily a bad thing, as the drugmaker's balanced approach to growth keeps it safe from major earnings dips or having to deal with the struggle of replacing a single drug that accounts for a third or more of annual revenue. But Wall Street does tend to reserve premium valuations for drugmakers with big hitters in their lineups, so to speak.
Is the big pharma stock a buy?
Despite its lowball valuation, most analysts covering GSK stock think it's only modestly undervalued right now. The key reason is that GSK's two main areas of growth -- vaccines and respiratory diseases -- don't traditionally have strong pricing power compared with, say, novel cancer treatments or therapies for rare conditions. So even though GSK's top line is moving in the right direction, Wall Street probably won't hand the company a top-shelf valuation. But if you're OK with modest share price appreciation on a yearly basis and a stellar dividend program, this cheap big pharma stock should fit the bill.
