JPMorgan lowers GlaxoSmithKline shares target amid vaccine sales concerns

On Friday, JPMorgan adjusted its price target on GlaxoSmithKline (NYSE::LN) (NYSE: GSK) shares, reducing it to £15.50 from the previous £16.60. The investment firm maintained its Underweight rating on the pharmaceutical giant. The revision follows GlaxoSmithKline’s recent quarterly performance and the firm’s updated forecasts for the company’s future earnings.

According to the analyst’s remarks, GlaxoSmithKline’s second-quarter results surpassed expectations, and the company raised its forecast for fiscal year 2024.

This was attributed to slight increases in revenue and EPS, along with better-than-anticipated figures in the Pharma sector, including tail-end products, HIV, and oncology. These positive adjustments, however, were counterbalanced by reduced expectations for vaccine sales, particularly for Arexvy and Shingrix.

For the fiscal year 2024, JPMorgan’s updated forecasts for GlaxoSmithKline now sit toward the upper range of the company’s own upgraded guidance.

Nonetheless, the analyst expressed concern for the years beyond, predicting a downward slide in consensus EPS forecasts for 2025 and 2026. This anticipated decline is largely due to expected erosion in the HIV segment and a pipeline not robust enough to compensate for these losses.

The analyst also highlighted the importance of the upcoming Advisory Committee on Immunization Practices (ACIP) meeting on October 23rd. This event is deemed crucial to gauge whether GlaxoSmithKline’s Arexvy will be recommended for revaccination.

JPMorgan remains skeptical about the likelihood of a positive recommendation, citing both data and discussions from the previous ACIP meeting in June.

In light of the less favorable outlook for the vaccine division and the negative outcome of the Zantac Daubert case in June, JPMorgan has also lowered its target price-to-earnings ratio for GlaxoSmithKline from 9.5x to 9x for the year 2025. This adjustment has directly influenced the reduction of the price target to £15.50 while reiterating an Underweight stance on the stock.

In other recent news, GlaxoSmithKline (GSK) has been making significant strides in its operations. The pharmaceutical giant reported a robust second-quarter performance, with a 13% increase in sales to £7.9 billion and a 21% rise in core operating profit to £2.5 billion.

This strong performance was seen across all product areas, particularly in specialty medicines and vaccines, leading to an upgraded full-year guidance.

In addition to financial growth, GSK has also seen advancements in its drug pipeline. The FDA approved the expanded use of Jemperli, a key product in GSK’s immuno-oncology portfolio, for the treatment of endometrial cancer.

The approval was based on the RUBY phase III trial results, which demonstrated a significant reduction in the risk of death when Jemperli was used in combination with chemotherapy.

However, JPMorgan has expressed concerns about GSK’s future earnings, predicting a downward slide in consensus EPS forecasts for 2025 and 2026.

This is largely due to expected erosion in the HIV segment and a pipeline that is not robust enough to compensate for these losses. Consequently, JPMorgan has adjusted its price target on shares of GSK and maintained its Underweight rating on the company.

These recent developments highlight GSK’s ongoing efforts in advancing treatments in oncology and achieving robust financial performance, while also drawing attention to the challenges the company may face in the future.

InvestingPro Insights

As we consider JPMorgan’s assessment of GlaxoSmithKline, the latest data from InvestingPro offers additional context for investors. The company’s market capitalization stands at a robust $80.8 billion, with a forward P/E ratio of 15.45, suggesting a reasonable valuation in comparison to sector peers. Notably, GlaxoSmithKline’s strong free cash flow yield, as implied by its adjusted P/E ratio of 10.44, underscores its potential for value creation.

InvestingPro Tips highlight that GlaxoSmithKline has been a prominent player in the pharmaceutical industry, maintaining dividend payments for 24 consecutive years, which showcases its commitment to returning value to shareholders. Moreover, the company’s revenue growth for the last twelve months has been positive at 7.2%, with a notable quarterly increase of 9.84%. This aligns with JPMorgan’s observation of the company’s improved forecast for the fiscal year 2024.

For those considering the stock’s stability, GlaxoSmithKline generally trades with low price volatility, which may appeal to risk-averse investors. The company’s dividend yield stands at an attractive 3.8%, and it has experienced a year-to-date price total return of 8.88%, reflecting a positive trend in the stock’s performance. With additional insights available, including 9 more InvestingPro Tips, investors can further explore GlaxoSmithKline’s investment profile at https://www.investing.com/pro/GSK.

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