After years of underperformance, 2021 has been a decent year for GlaxoSmithKline (LSE: GSK) shareholders. The GlaxoSmithKline share price had a rough 2020, but rebounded this year. As a GSK shareholder for most of my life, should I sell into recent strength, or hang on in hope of higher gains?
The GlaxoSmithKline share price bounces back
As I write, the GlaxoSmithKline share price stands at 1,477.2p, up 35.4p (+2.5%) today. It has also gained 4.5% over five days and 6.8% over one month. The stock is ahead 5% over three months, 10.5% over six months, and 11.6% over one year. In 2021, it has risen by exactly a tenth (+10.0%). Since February, the GSK price action has been steadily upwards, with the shares hitting a 52-week of 1,528.8p on 18 August 2021.
That said, GSK shares have been a long-term loser. Having owned this stock since the 1980s, I clearly remember it closing at 2,288p on 8 January 1999, during the late-90s dotcom boom. Sadly, the stock has never been anywhere near that ever since. Although the GSK share price hit a five-year intra-day high of 1,857p on 24 January 2020, along came Covid-19 to collapse the price. Despite being the world’s #1 vaccine producer, GSK shares plunged along with the wider stock market. Thirteen months later, the stock hit a 52-week low, closing at 1,190.8p on 26 Feb 2021. The very next day, I suggesting buying this cheap share.
Good news for GSK shareholders
Yesterday, GSK released its third-quarter results — and what a pleasant surprise they were for long-suffering shareholders. Quarterly sales of £9.1bn were 10% ahead of Q3/2020 and £400m ahead of analysts’ consensus estimate of £8.7bn. Adjusted earnings per share (EPS) were 36.6p, also up 10% versus Q2/20 and almost a quarter (+24.5%) above the consensus forecast of 29.4p.
This leap in revenues and earnings was partly driven by surging sales of shingles vaccine Shingrix, up 41% to £502m. With routine vaccinations now resuming across the globe, this could boost GSK’s earnings in the coming quarters. Even so, the pharma giant expects earnings to fall by 2% to 4% for 2021 overall. What’s more, CEO Dame Emma Walmsley has promised strong growth from 2022-26, but can GSK actually deliver after years of slowing or negative growth?
Should I stay or should I go?
Like a good stool, GSK has three strong legs: pharma, vaccines, and consumer healthcare. All three divisions recorded sales growth in Q3/21: +10%, +13%, and +8% respectively. But, looking ahead, GSK’s pipeline cupboard looks rather bare when compared to mega-cap rivals’ drug cabinets right now. However, income investors like me welcome the quarterly dividend of 19p a share (and expected 80p/share total dividend).
Nevertheless, GSK faces an uncertain future — especially given its plans to split into two separate entities (Biopharma and Consumer Healthcare) in 2022. Also, the company will cut its dividend after this de-merger and possibly again in 2023. Meanwhile, CEO Walmsley is under attack from activist investors who don’t want her to lead Biopharma post-merger. Despite GSK’s attractive dividend yield of 5.4% a year, I’m not keen to buy more stock, given the dividend cuts to come. But I will keep reinvesting my GSK dividends into new shares, just in case I’m wrong. And, like activists Elliott Management and Bluebell Capital Partners, I’d like to see change at the top before committing any more capital to GSK!
Cliffdarcy owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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