Is GSK a bargain now the share price is near 1,333p?

The GSK (LSE:GSK) share price has fallen off its perch. So it may be a good time to research and consider the stock opportunity.

I think the global biopharma company has been dripping with promise for a while and looks like a growth-focused proposition for its shareholders. 

A pipeline of R&D hopefuls

The business has ambitions to deliver operational progress via its research and development (R&D) efforts. So could it go on to perform like its peer AstraZeneca has done over the past decade or so? Maybe.

GSK’s news flow has been gathering pace. It’s common for the company to release positive updates about its drugs and treatments under development.

However, unlike AstraZeneca, the firm has yet to gain sufficient progress from commercialising new drugs. Yet it may hit upon some bestsellers ahead, and incoming cash flow could start to increase. My hope is such operational progress will push the stock higher.

Here’s what the share price chart looks like.

For the time being, GSK is still working through legacy issues. For example, in October the directors announced an agreement to pay out up $2.27bn in settlement of US litigation cases.

The arrangement should deal with about 93% of the well-reported legal proceedings relating to the firm’s old heartburn medication Zantac. So the move will put a big part of the problem behind the business, allowing it to move on.

The growth agenda is unaffected

It’s an expensive outcome. But the company said it can fund the costs of the settlements from existing resources. That means there will be no change to the growth agenda or investment plans for R&D.

Such legal battles are not unusual for companies the size of GSK. When I read the notes at the bottom of the financial reports of big firms from various sectors, the list of ongoing legal issues is often long.

Many types of business operations can be risky, and legal activity is often part of what it takes to keep things progressing. Nevertheless, one of the specific uncertainties for GSK shareholders is that some other drug in its stable may attract litigation.

Another risk is the firm’s R&D pipeline may disappoint and fail to produce any big-selling medicines.

Nevertheless, chief executive Emma Walmsley was upbeat in October’s third-quarter results report. The R&D pipeline is strengthening and there have been 11 positive phase-three trials so far in 2024. On top of that, the company plans five new “product approval opportunities” next year.

A positive outlook and dividends now

The directors are sticking to previous guidance for 2024 and Walmsley is “even more confident” about the outlook for next year onwards.

Meanwhile, City analysts expect normalised earnings to advance by around 11% this year and about 8% in 2025. 

But one of the main things I like about GSK is the decent shareholder dividend. With the share price near 1,333p, the forward-looking yield for 2025 is around 4.8%.

Given the potential for multi-year growth in the business, I reckon that level of yield suggests a keen valuation here that’s worth investors considering.

This post was originally published on Motley Fool

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