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GlaxoSmithKline - I'm Not Buying It (Yet)

Apr. 12, 2021 8:18 AM ETGSK plc (GLAXF), GSK49 Comments


  • GlaxoSmithKline is a British, international pharma company formed in early 2000, and was the world's sixth-largest pharma company as of 2019.
  • It is the fourth largest stock on the London Stock Exchange, but holds the dubious honor of agreeing to pay the largest settlement by a drug company ever following the fraud.
  • Under the hood, we have a fundamentally appealing company, but there are certain considerations that we need to be aware of before we start investing in the business.
  • Because of the uncertainties here, I am choosing superior and safer investments at this time. GSK might be more interesting in the future.
Glaxo Smith Kline headquarters, London
Photo by William Barton/iStock Editorial via Getty Images

This is going to be an interesting article. Few companies that I haven't written about have received as many requests as GlaxoSmithKline (NYSE:GSK). Despite me having a large portfolio focused on international stocks, GSK is as of this time not

This article was written by

Wolf Report profile picture

Wolf Report is a senior analyst and private portfolio manager with over 10 years generating value ideas in European and North American markets.

He is a contributing author for the investing group iREIT on Alpha where in addition to the U.S. market, he covers the markets of Scandinavia, Germany, France, UK, Italy, Spain, Portugal and Eastern Europe in search of reasonably valued stock ideas. Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (49)

I share concerns over GSK, but differ in what I think the risks are.

1.) I feel comfortable with the new leaderships turning pharma around. They have successfully developed /deployed Shrinrix and Advir replacement drugs to fill in the huge hole Advir generics created. (No small feat) so when I look at the pipeline I think they will execute. On the negative side, what Modernas MRNA technology represents to GSKs vaccine business scares me which is why I dont see a spin off of that division any time soon as I would not pay a premium for it like I would Moderna.

2.) I see Elliott hedge fund as a negative … just look to T to see the monkey wrench they into the works. I see them as a net negative as they will destroy long term value in exchange for a quick 15% profit. They just play a shell game with respect to debt and pre asset breakup.

3. The spin-off of consumer health in the sort term looks good in theory, but as a long term investor, I see them as likely being too eager to acquire as a growth strategy and getting into trouble similar to Kraft/Heinz. Also the gross margins going up for the short term look good until all that cost cutting results in bad PR from poor quality and damage to brand reputation. Summary : I see too much risk taking in the future. One step forward … two steps back.

I think there will be a short term pop as I think by 2024 the value of both companies added together will be close to $65 per share. But I will have an ichy trigger finger for the consumers health brand if they being to spend money like drinking sailors for some aspirin factory located in Germany. I’ll also sell first and ask questions later should pharma not have a good future plan for the vaccine unit.

Summary: I’m not worried about the specific issues generally raised in this article.

I am a short term bull and perhaps long term bull as long as they avoid the obvious obstacles that others will throw in their path.
Mili21 profile picture
I am in GSK when it was trading around $33.x and will round the position, if/when it goes below $30.
since the dividends are not subject to FT, I purchased this stock in my 401 so tax/gains are tax free for sometime.
What is your take on the dividends are at risk of cutting in half or more?
Paperone75 profile picture
@Mili21 a cut of 57% seems inevitable
Mili21 profile picture
Can you explain how the number 57%? I mean how it is calculated to arrive at this number?
Just trying to understand the methodology to calculate the divi cuts.
Paperone75 profile picture
@Mili21 Just my personal best estimate :)
You have missed a golden opportunity . Paul Singer Elliot Hedge Fund bought it just as you posted your report. You can still buy though .It is still very cheap.
This doesn't always mean the Market will be favorable, but after Market for half my stocks were positive and the remaining were either flat or only down a few cents per share. Possible Tuesday will be a good money day. May The Force Be With Us................💰
Same here.
Thanks for confirming what I have been thinking.

I was long GSK but sold after the run-up from the Elliot Management news allowed me to eek out a meager gain after pocketing a couple of dividends.

I was planning to wait and see what happened in the split, although, my experience with splits has been completely negative. I was in that “hoping for the best” camp, but, the arrival of Elliot cured me of that notion.

I can’t recall when the emergence of an activist investor has ever been beneficial for common shareholders in the long-term. They typically have a strategy to take a substantial, short/near-term gain and that strategy is often at the expense of other stakeholders.

So, with that, I’ll take my chips off this table and wait for the smoke to clear.
@Hangin'Loose A very good and logical comment. I am not impressed with their performance either and was able to sell at $38.20. That price and a couple of dividends allowed me to have a meager gain also. Better opportunities elsewhere.
@aristocrat & Dividend King Investor ...just for kicks I took a look at the Elliot Management website. Under the “What We Do” tab there are only two subsections that readily apply to GSK:




It’s probably just my cynicism but I don’t read anything about enhancing value for existing shareholders. It’s just not in their DNA.

Who knows? Hopefully they will prove me wrong.
Thank you for great analysis. Why not split into three companies(Cx, Rx, Vac)? No synergy between these 3 BUs.
Thank you for this long overdue analysis (and great reader comments). Hanging on for the split.
Would be interesting to update your analysis in a few months / quarters after the “Elliott” effect !!
Eugene Capital Advisors profile picture
Excellent analysis. Elliott apparently sees the potential here too - will be interesting to see which levers they choose to pull and whether they can spark growth
RixRixx profile picture
Are you buying it now, after Elliot's multi billion pounds stake?
Luca Stein profile picture
There are 2 arguments for buying this stock in my mind.
1. british dividends are tax-free
2. possible multiple expansion thanks to the consumer buisness which might earn multiples like other mature brand companies like Nestle for example.

Otherwise it looks really bad though... I dont like this company
Paperone75 profile picture
"This is going to be an interesting article." ...yes, indeed it has been so :-)
White Cat Society profile picture
What does "fairly excellent" mean, anyway...
I have in a sell order if it reaches a certain price. GSK is a company misdirected by it's board. They enjoy collecting their fat checks but do nothing to improve the business. Too busy enjoying Tea Time and getting rich to get involved with company business making money for share holders.
coloradoeveryday profile picture
I disagree that this is a good article/analysis. It is all done “in the rear view mirror”. With the overall business trading at a 12x P/E and the Consumer Business (33% of the whole) likely to trade at a 16x P/E, or higher, (as high quality consumer businesses regularly do; the math of the split off would drive an increase in value of 11% alone from the weighted average increase in P/E multiples [assumes no change in the 12x for the 66% Pharma/vaccine biz]. Hold for the split catalyst. Seems pretty easy to me.
if getting in at low 30s, there are enough potential catalysts that management has good odds to hit some by luck !
Luca Stein profile picture
@coloradoeveryday could easily be more depends on how much the market will value it but currently similiar stocks in my mind trade for more like 20 P/E rather than 16 which I would consider conserative.
coloradoeveryday profile picture
@stock 345 agreed.
"but there's something wrong with this company at its very core that it can't take the massively successful brands and turn this into earnings and positive returns for shareholders." Truer words were never spoken. I recently threw in the towel after 5 years with a 3% cagr including dividends. It would have been negative without the dividend. However, if the PE drops below 10 I'll consider jumping in again. Nice article.
arok79 profile picture
Owner of GSK stock. Absolutely no problem if I was to initiate a new position in GSK at these levels. Great dividend for a quality company. Paid to wait. If it gets down to near $30/share I will look to add a good amount more, but already have a healthy position in GSK. Dividend compounding over the years has worked beautifully.
W Scott profile picture
I don't see anything appealing with GSK, even with a much lower entry point; there would have to be something on the horizon to have a material positive impact on earnings to make this one worthwhile. EPS have been all over the board and no real directional growth. Estimates are missed almost 20% of the time, and the dividend has been cut 4 out of the last 6 years helping keep the payout ratio in line. Trainwreck.
@W Scott the invoice has not been cut. It has stayed flat for the past few years.
White Cat Society profile picture
@W Scott You're looking at the divvy in USD for the ADR, which oscillates based on FX. GSK's UK dividend in GBP has been flat for years, no cuts.
Alexander Schiller profile picture
Good to know, thanks for the informative article! Shocking to see that the company has gone nowhere for 20 years.
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