Shore Capital's recent research note on GSK PLC (LSE:GSK, NYSE:GSK) paints an optimistic picture for the pharmaceutical giant, underlining reasons for maintaining a 'Buy' recommendation with a raised fair value to 2,000p, up from 1,850p.
The note points out that GSK's current market valuation, trading at a price-to-earnings ratio (PER) of approximately nine times for the financial year 2025 (FY25F), is significantly lower than its peers, averaging around 15 times. This discrepancy is seen as largely unjustified, especially given GSK's promising growth trajectory.
A key highlight from the note is the successful launch of GSK's respiratory syncytial virus (RSV) vaccine, Arexvy, which exceeded initial market expectations in its debut quarter.
ShoreCap believes that the continued momentum of Arexvy, along with the broader uptake of the Shingrix vaccine outside the United States, could drive further growth for GSK in 2024.
Additionally, the company is expected to maintain low to mid-single-digit growth in FY24F, with sales forecast at £31.4 billion and adjusted earnings per share (EPS) at 157p, slightly ahead of the consensus.
The note also touches upon the ongoing Zantac litigation, a significant overhang on GSK's share price. However, ShoreCap suggests that the worst-case scenario of a US$30 billion settlement may already be reflected in the current share price, and any clarity in the upcoming trials could lead to a material re-rating of the stock.
The broker utilises a blended valuation methodology, combining discounted cash flow (DCF) and relative valuation based on peer group multiples, to arrive at the 2,000p/share fair value estimate.
This approach takes into account both the absolute valuation of GSK's business fundamentals and the near-term market dynamics.
Furthermore, GSK's dividend yield of approximately 4%, which is highly competitive relative to other large-cap pharma peers, provides an additional layer of investment attractiveness.
In afternoon trade, the shares were up 5p at 1,578p. That represents a 21% discount to Shore's valuation.