GSK Shares Decline Following Q3 2024 Earnings Report

Shares of GSK fell over 3% after the release of its third-quarter 2024 earnings, prompted by disappointing sales figures in key vaccine products and the company's decision to maintain its full-year guidance despite increasing challenges.

Analysts' Reaction

• Analysts at BofA Securities referred to the results as a "low-quality beat," suggesting that the earnings per share (EPS) improvements stemmed mainly from delayed costs rather than solid operational performance.
• GSK reported an EPS of 49.7 pence, which surpassed consensus estimates by 14%, primarily due to favorable cost phasing and a better-than-expected operating margin.

Underperformance in Key Products

• Despite the EPS gain, sales figures in critical divisions were disappointing. Notably:
  • Arexvy (RSV vaccine) missed expectations by 21%.
  • Shingrix sales fell short by 13%.
• The overall vaccines segment experienced a 2% decline, contributing to negative investor sentiment.

Concerns About Future Growth

• BofA analysts expressed doubts about GSK's ability to sustain momentum, noting that while some older vaccines and meningitis products showed strong performance, the future of Arexvy and Shingrix remains uncertain.
• The company opted to maintain its full-year guidance, projecting EPS growth between 10-12% at constant exchange rates (CER), although it suggested hitting the midpoint of this range, which could limit positive surprises.
• Unfavorable currency movements are now anticipated to affect earnings negatively by 8%, a shift from the previously expected 6% impact.
• This outlook presents potential additional pressure on earnings, especially in light of challenges facing GSK's flagship products.

Long-term Risks Identified

• BofA Securities kept its "underperform" rating on GSK stock, citing long-term risks, including concerns over a weak pipeline and sluggish growth in core products like Shingrix and dolutegravir.
• Analysts warned that GSK's dependence on future RSV vaccine boosters is speculative, given uncertainties regarding long-term booster schedules.
• The weak sales performance across various segments and the identified risks have heightened fears of a prolonged earnings growth slowdown beyond 2025.

Conclusion

• GSK faces significant challenges with visibility into the performance of its general medicines and vaccines portfolio in the upcoming quarters.