GlaxoSmithKline earnings preview: what to expect from Q4 results

GlaxoSmithKline shares will be in focus this week when it releases its latest set of results, with investors also watching for news on its coronavirus vaccine and separation plans.

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When will the GlaxoSmithKline Q4 results be released?

GlaxoSmithKline, also knowns as GSK, will release results for the fourth-quarter (Q4) of 2020 at 0700 GMT on February 3.


GlaxoSmithKline earnings consensus: what to expect

GSK’s original guidance was for adjusted earnings per share (EPS) to fall by 1% to 4% in 2020 from the 123.9 pence delivered in 2019. However, it said in its last set of quarterly results that it expected the decline to be toward the milder end of that range.

Although it has a portfolio of new products that are delivering growth, GSK is also investing considerable sums to get them off the ground. Results will also be impacted by the costs associated with GSK’s plan to separate into two businesses.

Notably, analysts are expecting a steeper annual decline in adjusted EPS in 2020 of 7.3% to 114.83 pence. Below is what analysts are expecting from GSK’s fourth-quarter and annual results, according to data from Reuters.

GSK Earnings Consensus

Q4 2019

Q4 2020e

FY2019

FY2020e

Revenue

£8.89 billion

£8.75 billion

£33.75 billion

£34.22 billion

Adjusted EPS

24.8p

23.35p

123.9p

114.83p

Total EPS

25.9p

6.01p

92.6p

96.88p

GSK’s dividend is expected to stay flat for another year in 2020 at 80 pence per share, made up of a 19p payout in each of the first three quarters and the expectation that it will pay a larger 23p final dividend for the fourth.


Vaccination rates

GSK is a giant in the vaccine market, providing prevention against everything from hepatitis and meningitis to HIV and the flu. The company was knocked when the pandemic started in early 2020 because it reduced the number of people getting vaccinated against other diseases.

GSK said vaccination rates had improved during the third quarter and returned to pre-pandemic levels in the US and maintaining that momentum through the fourth quarter will be key to GSK hitting its targets.

The performance of its new shingles vaccine, Shingrix, will also be key to GSK achieving its guidance, which is underpinned by ‘the expectation of sustained recovery of adult immunisation rates, particularly in Shingrix.’


Growth and consumer healthcare brands

Investors will also be monitoring the performance of GSK’s key growth products such as Nucala, Trelegy, Benlysta and Zejula, as well as its core consumer healthcare products that range from Aquafresh toothpaste to painkiller Panadol, as these drove the improvement in performance during the third quarter alongside improve vaccination rates.


GSK separation

GSK formed a joint venture with Pfizer in 2019 to bring together the pair’s consumer healthcare brands to create a new market leader. GSK plans to demerge the joint venture by August 2022, leaving GSK as a biopharma group focused on researching and developing new drugs.

The separation is designed todeliver options for sustainable growth and returns to shareholders’ but will cost significant sums and weigh on results. The lack of insight into how it will impact cashflows and dividends has also lingered in investor’s minds, so keep an eye out for any update on how the process is progressing.


GSK coronavirus vaccine development

GSK teamed up with French firm Sanofi as pharmaceutical firms looked to collaborate to find a vaccine to protect against coronavirus last year, but the pair have fallen behind after its progress was delayed in December.

Although Phase 1/2 trials showed the vaccine prompted ‘immune response comparable to patients who recovered from COVID-19 in adults aged 18 to 49 years’, there was an insufficient response in older patients. GSK and Sanofi said they had to adjust the concentration of the antigen in order to get a sufficient immune response in all age groups, prompting them to start preparing for a new trial with an improved antigen formulation that will start this month.

The delay means the vaccine will not be available for distribution until the final quarter of 2021 compared to its original goal to have it approved and ready in mid-2021.

The trials will be eagerly watched by shareholders as the pair have large orders lined-up for their vaccine once it is approved. It has signed contracts to supply 72 million doses to Canada, 300 million doses to the EU and 100 million doses to the US.


How to trade the GSK results

AstraZeneca shares have fallen over 1% during the days that it released the first three sets of quarterly results during 2020, despite significantly beating earnings expectations on two of the three occasions.

Brokers currently have an average Buy recommendation on GSK and believes the stock is significantly undervalued with an average target price of 1692.22p – 25% higher than the current GSK share price. However, opinion is still split considering 14 brokers currently have a Hold rating on GSK (compared to 6 Strong Buys, 6 Buy and 2 Sells), largely citing the uncertainty hanging over the separation of GSK into two separate businesses and the impact it could have on cashflow and dividends.


Where next for the GlaxoSmithKline share price?

GlaxoSmithKline share price trended lower across 2020. It trades below its descending trendline dating back to early May. It also trades below its 50 & 100 sma on the daily chart indicating an established bearish trend. 

More recently, after hitting a low of 1280 and rebounding the selloff has runout of steam and the share price has been trading more range bound, capped by an upper band at 1450 and capped by a lower band at 1330. The price is currently towards the lower band of the range.

This week’s earnings could provide the catalyst to drive the share price out of this range, with a break below 1330 lower band potentially opening the door to a steeper sell off to 1280.

On the flip side, an attempted recovery could see the 50 sma tested at 1380 prior to 1410 the descending trend line. The bulls will be looking for a move over 1450 to negate the current bearish trend and drive the price higher to 1485.


How to trade top UK stocks

You can trade GSK shares with Forex.com, with tight spreads from 1 pt on UK shares available.

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