the story of GlaxoSmithKline's annual results is a lesson in the art of managing expectations. The headline figures were less than cheery – the drug maker booked a fourth-quarter loss of 7.5p per share before major restructuring, against forecasts of 6p per share – but the stock firmed up, despite yesterday's falling market.
Though it may seem odd at first, the reaction was down to the fact that the drug-maker had already flagged up a massive £2.2bn fourth-quarter legal charge weeks before the results. Analysts had already run the numbers and were expecting the provision to wipe out the earnings for the three months to December, which it did.
The City was also expecting the charge to push back the resumption of share buybacks. But, the day before the results, GSK unveiled the sale of its stake in quest diagnostics in a cool $1.7bn deal. Soon there was talk that the company could well pull a rabbit out of the hat, and it did, announcing a new long-term share buyback and raising its dividend.
And this isn't mere spin. Few companies can digest a massive legal hit and still resume a buyback. Fewer still can boast of growth in tough markets such as the US. Chief executive Andrew Witty has spent the past couple of years turning GSK into something more than a mere pharma company, making the research and development process more efficient and throwing resources at the consumer arm. These moves promise to keep GSK on a strong footing as the industry deals with growing competition from generics. He deserves credit, as does the stock, which trades on undemanding multiples of about 11 times forward earnings.
The combination of the recent weakness in the share price – it was down nearly 9 per cent over January – the share buyback and the promise of future growth make GSK a solid buy
http://www.independent.co.uk/news/business/sharewatch/investment-column-gsk-is-healthy-and-its-not-just-the-drugs-2203806.html
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