With a market value of £68bn, GlaxoSmithKline (LSE: GSK) is one of the FTSE 100 index’s largest members. Today, it’s the Footsie’s seventh-largest constituent. However, unlike many other blue-chip shares, the GSK share price has declined during 2020/21. Currently, it stands almost £5 below its January 2020 peak. Recently, the shares have bounced back from their 2021 low. So what might give this sickly stock a further shot in the arm?
The GSK share price dives
The GSK share price was riding high 14 months ago. On 17 January 2020, it hit its 2020 closing high of 1,846p. A week later, on 24 January, it hit an intra-day high of 1,857p. But it’s been pretty much all downhill since. Despite being the world’s #1 vaccine manufacturer, GSK fell behind its ‘Big Pharma’ rivals in bringing a Covid-19 vaccine to market. Thus, it was well behind the curve when news of several effective vaccines arrived in early November.
As well as missing the boat on Covid-19 inoculations, GSK’s yearly revenues have shrunk in recent years. With blockbuster drugs and treatments coming off patent, it desperately needs novel drugs and vaccines to inject new life into the business. Hence, the GSK share price saw some fairly steep falls in 2020/21, as disappointed shareholders sold out and moved on.
On Meltdown Monday (23 March 2020), the GSK share price closed at 1,374.6p, down more than 470p in two months. That collapse of more than a quarter (25.5%) was a harder fall than for the wider FTSE 100. However, by 27 April, the shares had come roaring back, closing at 1,703p. Unfortunately, over the next 10 months, the stock slumped. Three months ago, on 26 February, GSK stock hit its 2021 closing low of 1,190.8p.
What next for GSK?
Fortunately, the shares have since rebounded and closed at 1,353.2p on Wednesday. That’s an increase of over 160p — almost a seventh (13.6%) — in three months. As a long-suffering shareholder, I’m pleased that the GSK share price has bottomed out and bounced back. But what might keep this recent price momentum going?
First, GSK needs to reverse the multi-year decline in revenues (down 2% in 2020). With 20 assets in late-stage development, there may be progress in this direction in 2022/23. Second, shareholders would welcome higher earnings per share (EPS). In 2020, adjusted EPS of 115.9p were down 6%, but EPS are also expected to fall in 2021. Of course, declining EPS would usually translate into a lower GSK share price, all else being equal.
Third, it would be good to have stronger guidance on the yearly cash dividend of 80p per share. Currently, GSK’s dividend yield is a generous 5.9%, more than two percentage points higher than the FTSE 100’s. But shareholders have already been warned by CEO Emma Walmsley to expect a dividend cut when GSK breaks into two groups (BioPharma and Consumer Healthcare) in 2022. A clearer message on expected future dividends might support and sustain a higher GSK share price.
Finally, it might well be time for change at the top. The CEO has sat in the top seat since April 2017, more than four years. I know dozens of GSK insiders feel that it’s time for a new hand on the tiller. Or perhaps a takeover at a premium price might be the best outcome for shareholders and the GSK share price? For now, I’ll just have to wait and see.