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In December 2017, GlaxoSmithKline plc (LSE:GSK) released its most recent earnings update. Generally, the consensus outlook from analysts appear highly confident, with a bottom line expansion of more than 100% in the upcoming year, relative to the previous 5-year average growth rate of -7.07%. Presently, with earnings at UK£1.53B, we should see this growing to UK£4.16B by 2019. Below is a brief commentary on the longer term outlook the market has for GlaxoSmithKline. Investors wanting to learn more about other aspects of the company should research its fundamentals here. See our latest analysis for GlaxoSmithKline
Can we expect GlaxoSmithKline to keep growing?
The 24 analysts covering GSK view its longer term outlook with a positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.
From the current net income level of UK£1.53B and the final forecast of UK£4.84B by 2021, the annual rate of growth for GSK’s earnings is 21.28%. This leads to an EPS of £1 in the final year of projections relative to the current EPS of £0.31. The primary reason for earnings growth is due to cost-cutting initiatives, since top-line is predicted to rise at a slower pace than earnings. With a current profit margin of 5.08%, this movement will result in a margin of 15.17% by 2021.
Next Steps:
Future outlook is only one aspect when you’re building an investment case for a stock. For GlaxoSmithKline, I’ve compiled three key factors you should further research:
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Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
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Valuation: What is GlaxoSmithKline worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether GlaxoSmithKline is currently mispriced by the market.
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Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of GlaxoSmithKline? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.