GSK(NYSE: GSK), a global healthcare powerhouse, has been on a transformative journey since CEO Emma Walmsley took the helm in 2017. Despite its shares badly underperforming the S&P 500 under her first few years as CEO (see graph below), Walmsley's ambitious restructuring plan has achieved several key goals, including but not limited to higher profitability, dividend payments that align with free cash flows, and a more innovative culture that embraces cutting-edge technologies like artificial intelligence, machine learning, and personalized medicines.
GSK Total Return Level data by YCharts.
Prior to Walmsley's tenure, GSK grappled with significant hurdles, including the patent expiration of its respiratory blockbuster Advair, a weak oncology portfolio, and a limited pipeline beyond respiratory medicines. During her seven-year tenure, GSK has emerged as a formidable player in infectious diseases, solidified its leadership in respiratory ailments, and made promising strides in hematology/oncology through strategic acquisitions.
Image source: Getty Images.
Is GSK stock worth buying right now? Let's take a closer look at the company's strengths, weaknesses, and core-value proposition to find out.
Valuation and growth prospects
GSK's stock currently trades at an appealing valuation of under 10 times forward earnings, significantly below the big pharma peer-group average of 17. The company offers an annualized dividend yield of approximately 3.85%, exceeding the average S&P 500-listed stock by more than twofold.
The pharmaceutical giant is poised for high-mid-single-digit growth in 2024 and mid-single-digit growth in 2025 per Wall Street's estimates. Its growth engine is fueled by a diverse portfolio of branded medicines and vaccines, including the respiratory syncytial virus vaccine Arexvy, shingles vaccine Shingrix, respiratory med Trelegy, long-acting HIV medicines like Cabenuva, prostate cancer therapy Zejula, and recently approved myelofibrosis treatment, Ojjaara.
A balanced approach to value creation
While GSK's early-stage pipeline hasn't garnered overwhelming enthusiasm from Wall Street, the company's balanced approach to growth and potential for bringing several branded medicines to market in key therapeutic areas present opportunities for substantial value creation.
GSK's primary weakness lies in its lack of a standout, mega blockbuster drug. The company's strategy of maintaining a balanced portfolio, while mitigating risks, has resulted in a lower market valuation compared to peers with high-profile, best-selling products, such as Merck's cancer immunotherapy Keytruda or AbbVie's suite of powerhouse immunology meds. Wall Street has a penchant for reserving premium valuations for drugmakers with products that consistently make the vaunted list of the world's top-10 selling medications.
Is this large-cap pharma stock a buy?
Thanks to its lowball valuation, analysts covering GSK stock think it could deliver a nearly 20% return on capital over the next 12 months. If true, the global pharma giant could outperform the benchmark S&P 500 over this period.
After all, most large-cap U.S. stocks are trading at rich premiums at the moment -- a dynamic that may act as a drag on the broader market in 2025. GSK, on the other hand, might attract bargain hunters as this top-heavy market rotates into less popular names with strong core-value propositions.
The bottom line is GSK scans as an intriguing buy for both value and income investors right now. That being said, its shares aren't going to yield market-crushing returns anytime soon. Over the next five-to-10-year period, though, GSK ought to be a winner for value-oriented investors thanks to its balanced approach to growth and Walmsley's rock-solid leadership.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool recommends GSK. The Motley Fool has a disclosure policy.
