’s ( ) share price is down 14% from its 15 May traded high of £18.12. The key reason for this I think is investor concern over the ongoing legal action alleging a link between its drug and cancer.
On 31 May, a US court ruled that 70,000+ lawsuits can proceed to trial. The potential for very high compensation awarded against GSK if these succeed remains the principal risk for the firm, in my view. However, 5 August saw a jury in Chicago find that the drug was not responsible for an Illinois woman’s cancer.
Although most of the 70,000+ ongoing lawsuits are in Delaware, this verdict looks encouraging for GSK. It may also refocus the attention of investors on the excellent fundamentals of the firm, I think. Its Q2 results released on 31 July showed total sales up 13% to £7.
884bn, 5.2% more than analysts’ expectations. Sales of General Medicines rose 12%, Specialty Medicines 22%, HIV medicines 13%, and oncology sales more than doubled to £0.
4bn. Given these numbers, GSK’s core operating profit leapt 18% and its core earnings per share (EPS) grew 13%. They also prompted the firm to upgrade its guidance for this full year.
Turnover is now expected to rise 7%-9% (from 5%-7%), core operating profit to 11%-13% (from 9%-11%), and core EPS to 10%-12% (from 8%-10%). The stock currently trades on the key ratio (P/E) of stock valuation measurement at 15.4.
This is the lowest among its competitors, which have an average P/E of 34.6. This group consists of at 26.
9, at 35.4, at 37.9.