In looking to increase our holdings within the Safe Haven Portfolio, I've added Glaxo SmithKline plcADR (GSK) as a solid pick in the big pharmaceutical sector, notes Bryan Perry, editor of Cash Machine — and a participant in The Interactive MoneyShow Virtual Expo on Oct. 5-7. Register here for free.
It is very well-positioned to see its shares appreciate, fueled by a few developing catalysts, a combination of investor activism and the planned spinoff of its consumer health business that could change the company’s fortunes for the better, according to an August article Barron’s.
The newspaper wrote that pressure from hedge fund Elliott Management is prodding the U.K.-based drugmaker to make changes. The stock began to rally in mid-April, the same time it was reported that Elliott built a multibillion-pound stake in the drugmaker.
CEO Emma Walmsley admitted to Barron’s that GSK has not delivered on shareholder returns but that a post-spinoff company would do better. “We’re looking forward to being held accountable for that,” Walmsley said.
In June, Walmsley added that the after the spinoff of the consumer health business, the “new GSK” will have a stronger balance sheet and be positioned as a growth company.
Elliott Management is apparently not happy with Walmsley at the helm, according to a May report. The firm wants someone with more biopharmaceutical experience. Walmsley is a former L’Oreal executive. “Investors need not pick a side in that spat,” the Barron’s piece reads. "What’s important for investors is that the hedge fund has shown it has patience and a track record of winning value for biopharma investors."
A second activist hedge fund, Bluebell Capital Partners, has built a small stake in GlaxoSmithKline, demanding several changes at the pharma group, noting that its board needed more scientific experience.
Bluebell urged the company to immediately begin a “thorough and robust process” to find new leadership, which is in line with arguments made by the fellow activist investor Elliott Management in June.
They also pointed out that CEO Emma Walmsley had less pharma experience than other competing companies where she should be replaced as soon as possible. While Bluebell’s stake in GSK is about €10 million, it insisted their firm was not working with Elliot in its activist campaign.
GlaxoSmithKline, based in London, posted better-than-expected quarterly results, helped by the performance of its pharmaceuticals and vaccines businesses.
The firm saw a near-40% jump in revenue year over year (YOY) for its vaccines business, which brought in £1.57 billion, while its pharmaceuticals segment, the biggest in terms of revenue contribution, brought in £4.23 billion, an increase of 3% from the same period last year.
The company also posted adjusted quarterly profit per share of £0.28, beating analysts’ estimates by £0.08. The company’s total revenue in the quarter increased 6% to £8.09 billion, handsomely beating analysts’ estimates by £570 million.
CEO Emma Walmsley called the company’s quarterly performance “excellent” and said that she expects the “positive momentum to continue through the second half of the year driving us towards the better end of our earnings guidance range for 2021, and meaningful performance improvement in 2022.”
GSK recently paid out a quarterly dividend of $0.523 per share, equating to $2.09 per share on an annual basis. The current dividend yield is 5.16%, making it the highest-paying drug company of its size in the world. Let’s put this name to work for us today and get paid right away. Buy Glaxo SmithKline plc ADR under $43.