Stock of the day 03/02/2015 – GlaxoSmithKline PLC

Big pharma company GlaxoSmithKline had a rocky 2014 with a host of issues; the company will be hoping to put last year behind it with its fourth quarter earnings release tomorrow.

2014 was a tale of two halves for Glaxo, as a drop at the end of July caused the company to suffer as the year went on. After 2013 saw overall growth on the markets, GlaxoSmithKline started 2014 at £16.14, quickly hitting its yearly high of £17.05 near the end of February. However, a disappointing Q2 2014 earnings release in July saw share prices fall from £15.56 to £14.20 in the space of a few days, and the company failed to fully recover after this hit. By mid-October Glaxo saw its 2014 low of £12.96 as the stock was dragged down by the market wide slump and after clawing its way back to £15.11 shares saw another fall at the start of December, before opening 2015 at £13.85. Ahead of tomorrow’s release, Glaxo is now trading at £14.79.



There has been incredibly mixed news coming out of GlaxoSmithKline, with every piece of bad news countered by something positive, and vice versa. The company is still embroiled in its Chinese bribery scandal, with corruption investigation costs nearing £300 million, whilst it has seen a big drop off in sales of pharmaceuticals and vaccines in America. Perhaps the worst news is that Glaxo has lost the patent for Valtrex, Seroxat, Zeffix, Combivir, Lovaza, Trizivir, and most devastatingly Advair. It is this final loss that is expected to hit Glaxo the hardest, as the asthma treatment makes up 27% for the company’s total revenues. Whilst this loss of exclusivity isn’t set to come into effect until mid-2016, its pending status has already made itself felt on the markets.

However, for all this bad news, GlaxoSmithKline has seen plenty of things to smile about. The company is just about to start large-scale trials of its Ebola vaccine in Liberia, a massive coup if the results are positive, whilst the success of its ViiV Healthcare spin-off could see it floated in 2016 with a valuation of £10-15 billion, near the same levels of Tesco and Rolls-Royce. Most importantly, last week saw the EU approval of a deal between Glaxo and Novartis that will see growth for the former in vaccines and consumer drugs. The deal is worth more than $20 billion and will see a joint venture in consumer drugs, with Novartis purchasing Glaxo’s oncology department and Glaxo getting Novartis’ vaccines division. Overall this deal will not only create a new over-the-counter drug giant, but increase Glaxo’s revenues by £1.3 billion a year.

In terms of this quarter’s results, earnings per share are expected to decrease from £0.279 in Q3 to £0.263, whilst sales are forecast to grow from £5.646 billion to £6.141 billion q/q, and pre-tax profits predicted to quadruple from £548 million to £1.682 billion. However, this still leaves Glaxo worse off that this time last year, causing 9 analysts to have a ‘buy’ rating, 17 ‘hold’ and 8 ‘sell’, with a target only marginally higher than its current price at £15.26. GlaxoSmithKline’s performance tomorrow will likely be on how much investors focus on its quarterly improvement over its less cheery year-on-year results.