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Has The Momentum Finally Turned For GlaxoSmithKline?


GSK has, like many of its peers, seen revenue growth struggle in recent years due to patent expirations.

GSK has also been transforming itself into a more vaccine and consumer healthcare focused business.

Q1 2016 results show that momentum in this transformation as well as new pharmaceutical sales is beginning to feed through.

With it, GSK's high dividend yield looks increasingly secure as long as growth continues in future quarters.

Could the tide have turned for 5%+ yielding pharma giant GlaxoSmithKline (NYSE:GSK)? Q1 2016 results suggest that investors may be justified in this hope. I have personally been invested in GlaxoSmithKline for some years. Indeed, "GSK" is both my longest and largest outstanding holding in my portfolio.

GlaxoSmithKline has been struggling for growth like many of its peers as blockbuster drugs lost patent protection. Consequently, as investors watched growth disappear and dividends increasingly looking endangered, its share price has been struggling:

GSK Chart

At the same time, GlaxoSmithKline has seen a great range of changes as it attempts to reinvigorate its portfolio and set itself into a more stable growth profile in the future. The Novartis (NYSE:NVS) deal saw their pharmaceutical side shrink as they swapped their oncology portfolio in return for the Swiss pharma's vaccines and consumer healthcare segments joining the "GSK" stable (admittedly, the latter into a joint venture). Consequently, we have to deal with fairly extensive differences in reported and pro-forma results at Q1 2016 time.

Yet what is great to see is that it looks as though (finally) GlaxoSmithKline is seeing some positive momentum, which should see its future looking more positive than its recent past has made it appear.

Let's take a quick look at what I mean.

The Novartis Effect

First off, the effect of the Novartis deal is a tangible shift towards vaccines and consumer healthcare. The deal only closed in early March 2015. The result? Consumer healthcare has leapt to contributing over 28% of revenue from just 20% in 2014. Vaccines, in turn, have jumped to 14% from 11%:

Needless to say, a similar shift has been experienced with regards to operating income:

This should indeed result in less revenue and earnings volatility in the future. Nonetheless, what is clear is that GlaxoSmithKline remains a chiefly pharma-focused business. Sure, vaccines and consumer healthcare have grown in importance, yet they are still a serious pharma player even with patent expirations and corporate reshuffling.

GlaxoSmithKline's evolution into a more consumer and vaccine-heavy business has, therefore, certainly continued its momentum at Q1 time. Yet this is not enough to get an investor excited. Fortunately, there is much more.

Growth Across the Board...