On Tuesday, Jefferies revised its stance on GlaxoSmithKline (NYSE:GSK:LN) (NYSE: GSK) stock, downgrading the pharmaceutical giant from 'Buy' to 'Hold'. The firm also adjusted its price target to INR 15.25 from the previous INR 20.00. The downgrade comes amidst expectations of subdued growth for the company in 2025, influenced by various challenges.
According to the analyst, while forecasts for long-acting HIV injectables, Ojjaara in myelofibrosis, and future pipeline projects remain optimistic, potential headwinds for Arexvy & Shingrix, as well as the US Medicare Part D redesign, are likely to temper growth.
Despite a reduction in 2025 and beyond revenue by roughly 2% and core EPS by 3%-5% following the third-quarter results, Jefferies maintains that GlaxoSmithKline's targets for a Sales Compound Annual Growth Rate (CAGR) of over 7% and a 2026 Core EBIT margin of over 31% are still within reach.
Jefferies' forecasts are slightly more bullish than the company's goals, with a Sales CAGR at 7.4% and a Core EBIT margin at 31.4%. The firm's Net Present Values (NPVs) estimate stands at 1950p/share, factoring in a typical 10% discount rate and the recent $2.3 billion Zantac settlement. Despite the downgrade, the analysis suggests that the fundamental value of GlaxoSmithKline remains compelling.
The new price target of INR 15.25 ($39.5) is a composite of the 1950p NPV and a 1100p fair value, which assumes an 8.5x 2025E Price to Earnings (P/E) ratio. This reflects a 40% discount, increased from 20%, to the sector multiple of 14.3x. Additionally, Jefferies has removed GlaxoSmithKline from its list of Franchise Picks, signaling a shift in its investment outlook for the company.
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