GlaxoSmithKline (LSE:GSK) stock is up 35% over the last year. The share price jumped at the latter end of last week after the blue-chip stock announced better-than-expected results. The stock is now trading at levels near to its five-year highs, but can GSK grow further?
Recent performance
GSK’s recent performance looks good. The firm posted above-forecast numbers last Wednesday, buoyed by strong demand for its Covid-19 drug. First-quarter turnover reached £9.8bn, up 32% from the same period last year, while operating profits rose 65% to £2.8m. Adjusted earnings per share were 32.8p, a 43% increase. Analysts had expected group revenues to come in around £9.2bn.
Chief executive Emma Walmsley attributed the performance to “good momentum” across its speciality medicines and vaccines. Speciality medicines (worth £3.1bn) gained 97%. The HIV sector grew 14%, while oncology was up 15%. Vaccine sales (£1.7bn) grew by 36%.
Xevudy, GSK’s antibody treatment for Covid-19, exceeded analysts expectations. The treatment generated sales of £1.3bn during the quarter after receiving emergency approval last year. Analysts had expected sales to be worth around £1.1bn.
Another strong performer was shingles vaccine Shingrix, which delivered sales of £698m.
Future prospects
I’m actually pretty bullish on long-term demand for vaccines, medicines and health-related products. This is based on the broad understand that ageing and comparatively wealthy Western populations will require more and more of these products over the coming decades.
However, there are a few things that make me a little concerned for the future. Firstly, GSK’s share price hasn’t been the most reliable source of growth on the FTSE 100 over the last decade. This reflects the company’s annual performances that haven’t been outstanding. Revenue growth has been slow for a while and that’s probably behind the company’s decision to split the firm. In February, GlaxoSmithKline debuted the branding of its new consumer healthcare unit, Haleon, which will officially be spun off later this year. This could turn out to be a good move, but it might be a while before we find out whether the demerger has been a success.
There are other issues too. Glaxo hasn’t raised its dividend since 2014. It has remained at 80p a year throughout the five-year tenure of chief executive Emma Walmsley. It also doesn’t have the best dividend coverage ratio. Last year the dividend coverage was 1.4, which certainly could be healthier. The new GSK dividend will be cut to just 45p in 2023 after the spin-off. It seems unlikely that Haleon will make up the 35p shortfall from the current dividend.
Moreover, with a price-to-earning ratio of around 16, I think there’s better value out there. So despite, the positive recent performance, I don’t think the GSK share price is going to soar any time soon. I’m not buying and in fact, I recently sold my GSK shares.