GSK

GSK (GSK) — Reasonably Priced With Unconvincing Growth Indicators

GSK returned losses of -19.8% last year, with its stock price reaching a high of $46.03 and a low of $28.47. Over the same period, the stock underperformed the S&P 500 index by -13.0%. As of April 2023, the company's 50-day average price was $35.45. GSK plc, together with its subsidiaries, engages in the research, development and manufacture of vaccines and specialty medicines to prevent and treat disease in the United Kingdom, the United States, and internationally. Based in Brentford, United Kingdom, the Large-Cap Health Care company has 69,400 full time employees. GSK has offered a 1.6% dividend yield over the last 12 months.

The Business Runs With Low Leverage Levels:

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue $33,754,000 $34,099,000 $34,114,000 $29,324,000
Gross Margins 64.8% 65.7% 66.0% 67.4%
Operating Margins 20.6% 22.8% 18.2% 21.9%
Net Margins 13.76% 16.86% 12.85% 51.0%
Net Income $4,645,000 $5,749,000 $4,385,000 $14,956,000
Interest Cost -$814,000 -$848,000 -$756,000 -$803,000
Depreciation & Amort. -$2,996,000 -$624,000 -$2,524,000 -$2,298,000
Earnings Per Share $2.32 $2.85 $2.16 $2.67
Diluted Shares 2,006,400 2,015,000 2,026,000 2,047,470
Free Cash Flow $5,857,000 $6,202,000 $5,021,000 $5,145,000
Capital Expenditures -$2,163,000 -$2,239,000 -$2,931,000 -$2,258,000
Net Current Assets -$41,844,000 -$39,376,000 -$39,087,000 -$29,281,000
Current Ratio 0.81 0.91 0.79 0.91
Long Term Debt $22,580,000 $22,538,000 $19,760,000 $16,194,000
Net Debt / EBITDA 2.64 2.56 2.38 0.88

A Very Low P/E Ratio but Trades Above Its Graham Number:

GSK has a trailing twelve month P/E ratio of 13.3, compared to an average of 24.45 for the Health Care sector. Based on its EPS guidance of $3.91, the company has a forward P/E ratio of 9.1. According to the 11.0% compound average growth rate of GSK's historical and projected earnings per share, the company's PEG ratio is 1.21. Taking the weighted average of the company's EPS CAGR and the broader market's 5-year projected EPS growth rate, we obtain a normalized growth rate of 8.7%. On this basis, the company's PEG ratio is 1.52. This suggests that these shares are overvalued. Furthermore, GSK is likely overvalued compared to the book value of its equity, since its P/B ratio of 7.0 is higher than the sector average of 4.16. The company's shares are currently trading 113.9% above their Graham number. Ultimately, GSK's strong cash flows, decent earnings multiple, and healthy debt levels factor towards it being fairly valued, its elevated P/B ratio notwithstanding.

There's an Analyst Consensus of Some Upside Potential for GSK:

The 4 analysts following GSK have set target prices ranging from $35.5 to $63.75 per share, for an average of $44.36 with a hold rating. As of April 2023, the company is trading -20.1% away from its average target price, indicating that there is an analyst consensus of some upside potential.

The largest shareholder is Dodge & Cox Inc, whose 3% stake in the company is worth $2,388,233,895.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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