GSK’s (LSE: GSK) share worth has rallied strongly since its full-year 2025 outcomes have been launched on 4 February. Nonetheless, the market continues to be critically undervaluing the pharmaceutical large’s enhancing fundamentals and long-term earnings energy, for my part.
The group is delivering constant development throughout Specialty Medicines and Vaccines, supported by rising margins and robust money era.
So, how excessive do I believe the shares will go?
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Robust earnings development
Earnings (‘profits’) development is finally what powers any firm’s share worth over the long term. A danger right here for GSK is litigation arising from any of its merchandise, which might be expensive to cope with. Even so, the agency forecasts core working revenue development of seven%-9% this 12 months and greater than £40bn in gross sales by 2031.
The one greatest driver right here is more likely to stay Specialty Medicines, which delivered 17% year-on-year development in 2025. Importantly for GSK’s long-term outlook, the division is margin‑accretive and excessive‑development. Additionally it is central to its repositioning following the 2022 demerger of Haleon. GSK’s focus as a pureplay pharma and vaccines enterprise means a cleaner construction that ought to assist higher margins and extra predictable money era.
In the meantime, the HIV portfolio stays a significant revenue centre with robust model loyalty and lengthy product cycles. Gross sales surged 11% 12 months to £7.7bn, with long-acting therapies and pre-exposure prophylaxis (medicines taken earlier than somebody is uncovered to HIV) being key future development drivers.
Even long term, the oncology pipeline is accelerating, with 5 FDA approvals final 12 months.Two main new approvals are anticipated up to now this 12 months — bepirovirsen forchronic hepatitis B, and tebipenem for classy urinary tract infections.
How have been the outcomes?
Turnover rose 7% to £32.667bn, driving core working revenue 11% larger to £9.783bn. This mirrored robust momentum in Specialty Medicines and Vaccines, supported by larger royalty revenue and disciplined reinvestment within the advancing R&D pipeline.
Core working margin elevated 1.1 proportion factors 12 months on 12 months to 29.9%. This was pushed by the combination shift in the direction of larger‑margin Specialty Medicines and Vaccines, alongside continued working leverage. And core earnings per share rose 12% to 172p.
Money generated from operations elevated 14% to £8.943bn. This underlined the group’s robust money conversion and generally is a main driver for development in itself.
How excessive might the shares go?
A discounted money movement (DCF) evaluation identifies the place a inventory ought to commerce by projecting future money flows and ‘discounting’ them again to right now. Analysts’ DCF modelling varies — some extra conservative than mine, others much less so — relying on the variables used.
Nonetheless, primarily based on my DCF assumptions — together with a 7.2% low cost fee — GSK shares might be 50% undervalued at their present £22.13 worth.
This suggests a ‘fair value’ of round £44.26 per share — double the place the inventory trades right now.
The hole between GSK’s worth and worth is essential for long-term buyers. It’s because asset costs are likely to converge to their truthful worth over time.
Consequently, the massive hole right here suggests a doubtlessly terrific shopping for alternative to think about right now if these DCF assumptions maintain.
My funding view
Given the intense DCF undervaluation, supported by robust earnings development prospects, I shall be including to my holding within the inventory quickly.
I additionally suppose the shares are worthy of different buyers’ consideration for a similar causes.
