A solid, defensive play for yield investors, but just what could sink GSK?

08:09 EDT 19 Oct 2016 | Proactive Investors

A decent defensive play and one for the yield investors is how one leading City broker described GlaxoSmithKline plc (LON:GSK) ahead of third-quarter figures next week. JP Morgan Cazenove also said it expects the international drugs giant to restate its guidance for the year of 11-12% growth in earnings per share (EPS), although it admits “this could ultimately prove conservative”. For the three months ended September, the broker said revenue growth measured in the local currencies would grow by 4% from £6.13bn this time last year.  EPS is set to increase by 10% from 23p. “We see a solid quarter, and we also expect consensus to make minor upgrades on a reported basis post the quarter, reflecting recent foreign exchange moves, though the recent forex moves are likely already partly reflected in the current share price,” JPMC said in a note to clients. The challenges for GSK are those posed by Brexit, which may actually provide a short-term foreign exchange rate boost, and life after Advair. The asthma drug is GSK’s biggest selling product by far – racking up revenues of £3.8bn last year – but it has come off patent. This means it is subject to cheap competition. Analysts worry what will follow Advair as the GSK pipeline appears bereft of blockbusters to take its place. JPMC reckons the stock is fairly valued at just over 15 times EPS but sees GSK as a “fairly safe defensive play in the near-term, particularly appealing to yield investors”. The dividend yield is a very decent 4.7%. Of the 17 analysts polled by the Broker Forecasts website, seven are sitting on the fence alongside JPMC. There are eight ‘buyers’ and only two ‘sells’. Up over a fifth in the year to date, shares in GSK marked time in early afternoon trade at £16.62. That values the business at £81bn, making it Britain’s fifth largest quoted business.  

Original Article: A solid, defensive play for yield investors, but just what could sink GSK?


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