GSK PLC (LSE:GSK, NYSE:GSK)’s growth outlook is being overlooked and the worst-case scenario for Zantac continues to be reflected in the share price.
That’s the view of Shore Capital which reiterated a 'buy' rating on the pharma giant with a 1,850p share price target.
The broker thinks GSK has made some steady inroads to reinforce its longer-term growth outlook with progress from the pipeline and product acquisitions.
“We believe progress made has helped narrow the gap to hit its long-term target for more than £33bn turnover in financial year 2031 and this comes despite some notable late-stage trial failures,” Shore Capital said.
Adding in recent positive developments on various products the broker now forecasts 2031 turnover of around £31.4bn (up from £29.6bn).
Despite this, the broker noted Zantac litigation continues to weigh on the stock and reduce shares to a c.10x price-earnings ratio on forecasts for the 2024 financial year.
Based on its discounted cash flow forecast, the current discount to the share would imply potential liabilities of up to US$30bn are being priced in by the market.
Analysts at the broker said they accept volatility in the share is likely to persist until this issue is fully resolved, but continue to feel that a worst-case scenario has likely been priced into the shares.
Also, the robust MDL ruling last year is taken as a positive signal for how the remainder of cases might ultimately evolve.
Shares in GSK rose 0.4% to 1,479.40p each in London on Tuesday.