GlaxoSmithKline profits set to increase

Even though pre-tax profits are called substantially higher legacy issues look to prevent too much optimism. 

GSK building
Source: Bloomberg

On Wednesday 4 February GlaxoSmithKline will release its fourth-quarter figures to the market. The adjusted earnings per share are expected to shrink from £0.279 down to £0.263. Sales are expected to grow from £5.646 billion to £6.141 billion, while pre-tax profits for the quarter are called to triple from £548 million up to £1.682 billion.

With all the issues that GlaxoSmithKline has had to face it is no surprise that the institutional assessment for the company is mixed. Nine companies have a buy rating, 17 are holds and eight are sells. The shares are (at the time of writing) trading at 1469p which coincidently is the same level as the average 12-month price target for the company.

The net 12-month yield on the shares is currently running at 5.45%, and considering the state of average government interest rates along with sovereign and corporate bond yields, it is not too much of a surprise that this has proven attractive to income investors.

The larger players in the pharmaceutical sector have all suffered because of the reduction in funding they have allocated to the research and development of new drugs and the subsequent reduction in exclusivity patents for their drugs. In order to play catch-up further spending or mergers and acquisitions will be required, and the markets are waiting to see these costs hit.

The company’s previous misdemeanors – like the mis-selling scandal in China – continue to weigh on it as it has spent almost £300 million settling corruption investigations.

The 1500p level has already proven to be barrier in the last three months and recent reaction suggests a lack of appetite from investors to mount a fresh challenge.

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