Is GSK stock a sell with 75,000 Zantac cases moving forward?

GSK plc (NYSE:GSK) faced a significant setback on June 3rd when its stock plunged by 8% following a Delaware judge's ruling allowing over 70,000 lawsuits against the company regarding its discontinued heartburn drug Zantac to proceed. These lawsuits allege that Zantac, containing the active ingredient ranitidine, may cause cancer due to the presence of NDMA, a known carcinogen.

Business fundamentals and challenges

GSK, a prominent pharmaceutical player, is currently embroiled in legal battles over Zantac, a once-popular medication pulled from the market in 2020 due to FDA concerns about NDMA contamination. The company vehemently contests the allegations, citing inconsistencies in court rulings and asserting the lack of conclusive evidence linking ranitidine to cancer.

However, the Delaware judge's decision represents a significant hurdle for GSK, intensifying scrutiny over its past marketing and safety practices. Amidst legal challenges, GSK continues to advance its product pipeline and explore growth opportunities.

Positive interim results from trials evaluating its blood cancer drug Blenrep offer a ray of hope, showcasing significant improvements in patient outcomes. This success underscores GSK's commitment to innovation and reinforces investor confidence in its long-term prospects, despite the prevailing legal uncertainties.

Earnings and analysts’ views  

and Ratings: Analysts remain divided on GSK's outlook, with concerns over potential settlement costs and reputational damage from the Zantac litigation. Citigroup anticipates substantial settlement expenses of $3 billion, while Redburn projects a narrower range of $1 billion for potential settlements.

GSK's first-quarter financial results exceeded expectations, signaling resilience amidst legal headwinds. CEO Emma Walmsley's strategic initiatives have positioned the company for growth, as evidenced by raised full-year guidance. However, lingering legal uncertainties cast a shadow over GSK's valuation, prompting investors to reassess the stock's risk-reward profile and potential impact on earnings projections.

As GSK navigates the legal maze surrounding Zantac, it's imperative to assess the technical indicators and chart patterns to gauge potential price movements in the wake of recent developments. Let's now shift our focus to analyzing the charts to determine the stock's price trajectory in the near term.

Recent Stock Performance and Failed Highs

GSK's stock experienced a sharp decline between April 2022 and September 2022, dropping from nearly $47 to under $30. After recovering, it traded between $33.3 and $38 for over a year. At the start of this year, the stock broke out of this range and attempted to surpass its previous high of $47 but failed to exceed $46.

GSK chart by TradingView
Today's drop has turned all short-term momentum indicators negative. If the stock does not rebound within a day or two, medium-term indicators will also turn negative. Traders looking to short the stock can do so near $42, with a stop loss at $44.2. If the stock continues to decline, it is likely to find support around $38, where traders can book profits.

Investors who remain bullish despite recent bad news can consider a low-risk entry point at current levels, with a stop loss near the recent swing low at $38.8. If short-term bearish momentum fades, the stock could rise again towards its recent high near $46, providing an opportunity to take profits.