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GSK share price slides as Barclays flags EPS dilution risk after Tesoro deal

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Shares in GlaxoSmithKline (LON:GSK) have fallen deep into the red in London in today’s session as analysts at Barclays lowered their rating on the company in the wake of the group’s deal to acquire US oncology specialist Tesoro for $5.1 billion (£4 billion). Proactive Investors quoted the analysts as pointing to ‘significant earnings per share dilution’ in the near term.

As of 14:58 GMT, GSK’s share price had given up 2.66 percent to 1,470.80p. The shares are underperforming the broader UK market, with the benchmark FTSE 100 index currently standing 1.08 percent lower at 6,947.08 points.

Barclays trims rating on GSK

Barclays trimmed its stance on GSK to ‘equal weight’ today, following the group’s deal to acquire Tesoro, which put the pharmco’s shares under pressure this week.

“We view the TSRO deal reaction as severe since it fails to attribute any long-term net present value accretion and implies total value destruction from the transaction,” the analysts pointed out, as quoted by Proactive Investors, adding, however, that it also reflected “the near-term truth of significant earnings per share dilution: in context of generic Advair looming, softening HIV trends, Shingrix hitting defined capacity constraints and a lack of meaningful R&D catalysts before H2’19 that will compound 2019-20’s outlook challenges”.

The broker concluded that while GSK’s valuation remained appealing, next year would “likely see better chances to revisit the story”.

Other analysts on group

Kepler Capital Markets reaffirmed GSK as a ‘hold’ yesterday, without specifying a price target on the shares, while UBS continues to see the company as a ‘buy,’ with a valuation of 1,700p. According to MarketBeat, the blue-chip pharmco currently has a consensus ‘hold’ rating and an average price target of 1,518.84p.

Liberum meanwhile continues to see GSK as a ‘hold,’ noting, however, that it is ‘not convinced’ by the Tesoro deal.

As of 15:01 GMT, Wednesday, 05 December, GlaxoSmithKline plc share price is 1,470.80p.

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