Argus Upgrades GlaxoSmith To Buy Following Asset Exchange With Novartis


In a research note published today, Argus analyst John Eade upgraded GlaxoSmithKline (NYSE:GSK) to a Buy rating with a $55 price target, on the heels of the news of the company’s sale of its oncology business to Novartis (NVS) and its purchase Novartis’s vaccine business.

Eade wrote, “We upgraded GSK in the wake of the announcement that the company would sell its oncology business to Novartis and purchase the Novartis vaccine business. The two companies are also planning to combine their Consumer Healthcare businesses into a joint venture in which GSK will have a 63.5% stake. We view the asset swap favorably as it will allow GSK to monetize its struggling oncology business (4% of 2013 sales) and build on its strengths, which are in vaccines (13% of 2013 sales) and over-the-counter products (20%). The transaction should also limit the impact of patent cliffs, which have hurt results in recent periods and will continue over the next 2-3 years. In recent years, Glaxo has been using its consumer business to enter emerging markets, and its vaccine business has benefited from limited competition and strong pricing power. While the Novartis transaction is unlikely to impact financial results until mid-2015, it should position GSK to benefit from the growing vaccine and consumer health markets, and lead to stronger revenue and earnings growth over time.”

The analyst continued, “The near-term outlook has been a problem, though and the GSK shares have been weak after a disappointing 2Q EPS report and now news of a fine from China over bribery. We think the selloff represents a value opportunity for long-term investors. The current yield, which we think is secure, if 5.5%.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst John Eade has a total average return of 20.5% and a 92.9% success rate. Eade is ranked #56 out of 3311 analysts.

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