GSK: Good Earnings Report, But Risks Ahead (Rating Downgrade)

Core Insights - GSK's stock price has shown volatility, with a notable rise of over 16% following Q1 2024 results, but faced a decline of almost 9% due to Zantac-related litigation concerns [1][2] - The company's H1 2024 results exceeded expectations, indicating strong fundamentals despite ongoing legal risks [1][2] Financial Performance - Healthy sales growth was reported, with turnover excluding COVID-19 solutions increasing by 13% year-on-year (YoY) in both H1 2024 and Q2 2024 at constant exchange rates (CER), consistent with the 14% growth in 2023 [2][4] - Core earnings per share (EPS) grew by 20% YoY at CER, although growth softened to 13% YoY in Q2 2024, still surpassing initial projections of 6-9% [4][5] - GSK has upgraded its full-year outlook, now expecting turnover growth of 8% and core EPS growth of 11% [5][6] Future Outlook - Despite positive H1 2024 results, a slowdown is anticipated in H2 2024, with turnover expected to contract by 5% YoY and core EPS declining by 9% YoY [6][7] - The company attributes this expected slowdown to the annualization of product launches and stocking impacts, particularly in Vaccines and Oncology [7][8] - GSK's Specialty Medicines segment remains strong, contributing 37% of revenues in H1 2024 with a 20% YoY increase [10][11] Stock Metrics - The forward non-GAAP price-to-earnings (P/E) ratio is projected at 8.9x, indicating significant potential upside compared to the five-year average P/E of approximately 13x [12] - GSK has increased its dividend payout by 3.4% for 2024, resulting in a forward dividend yield of 3.9%, which is favorable compared to the healthcare sector median yield of 1.4% [13][14] Investment Considerations - GSK's strong H1 2024 performance and upgraded outlook make it an attractive investment, although risks related to expected weak performance in H2 2024 and ongoing Zantac litigation may temper enthusiasm [15][16]