UBS Downgrades GlaxoSmithKline (GSK) to Sell

UBS analyst Michael Leuchten downgraded GlaxoSmithKline (NYSE: GSK) from Neutral to Sell.

The analyst comments "At face value GSK trades on c9x '23E PE for near double-digit EPS CAGR to '26. Compared to the EU peer group that may not seem demanding, but we think it is. We see two factors posing risks to the earnings base longer term - blockbuster vaccine Shingrix will exhaust its catch-up patient pool in the US around '27 and HIV product dolutegravir faces patent expiry at the same time. We think this could erode c20% of revenues. The current valuation implies >£2bn higher Shingrix revenues than we see as feasible or sustainability of the HIV franchise. Both are uncertain. GSK has time (for its R&D re-set) and options and could allocate capital (£20-30bn) to smooth over the '27 bottleneck, but this could mean earnings dilution. And if GSK takes a wait and see approach to the HIV conversion strategy and waiting for improved R&D productivity, that could imply meaningful earnings risk longer term. We are concerned that these scenarios could leave the stock on a much higher effective multiple than is the case at face value. We update our near-term estimates to reflect a better gross margin exCOVID solutions and cut our '27+ EPS estimate c30%. Our PT comes down to 1,300 from 1,820p on lower earnings and higher WACC (risk-free rate up 100bp). Sell."

For an analyst ratings summary and ratings history on GlaxoSmithKline click here. For more ratings news on GlaxoSmithKline click here.

Shares of GlaxoSmithKline closed at $33.47 yesterday.

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