UBS analysts have downgraded GSK PLC (LSE:GSK, NYSE:GSK) from a 'buy' to 'neutral' rating, citing uncertainties surrounding its vaccine portfolio and ongoing legal issues with Zantac.
The Swiss bank slashed its price target to 1,580p from the prior 2,040p to reflect a cautious outlook on future earnings.
Analysts highlighted concerns over GSK's vaccine prospects, particularly the lowered forecasts for RSV shot Arexvy and shingles jab Shingrix in the US.
"We see possible weakness if management has to step away from ‘flat US Shingrix sales for FY24E’ at 2Q but see a dividend yield of 4% and limited R&D risk as supportive," UBS analysts wrote, emphasizing a potential impact on earnings for fiscal year 2028.
The Zantac litigation continues to cast a shadow, with UBS indicating uncertainty over the timeline and potential settlement costs, despite GSK's stance that epidemiological studies show no link to cancer.
"We have no visibility on settlement discussions, but we see investors reluctant to invest ahead resolution 2Q US Shingrix weakness (6% of NPV) may see GSK miss part of FY24 guidance 2Q results," analysts noted, underscoring market hesitance ahead of possible court outcomes.
Despite these challenges, UBS acknowledges GSK's robust franchises in vaccines, respiratory, and HIV drugs, coupled with a solid balance sheet. UBS noted its current valuation reflects strong fundamentals but is tempered by unresolved legal issues, indicating a balanced view on GSK's market position.
GSK is set to report its second-quarter results on July 31, where attention will be focused on the performance of US Shingrix and management's strategic guidance amid evolving market conditions.
New York-listed shares of GSK fell around 0.7% in midday trading, while its London stock price closed level.