Analyst Note| Damien Conover, CFA |
GlaxoSmithKline reported strong first-quarter results ahead of our estimates, but we don’t expect any major fair value estimate change based on the outperformance that was aided by several one-time benefits. We view the stock as undervalued, with the market not fully appreciating Glaxo’s growth potential. Also, the upcoming consumer healthcare divestment (called Haleon) in mid-2022 holds potential to create value. Relative to comparable market valuations (but lacking all the financial data needed for our traditional discounted cash flow analysis), Haleon’s valuation could be close to GBP 50 billion, which would imply solid valuation expansion potential for the remaining Glaxo business. We believe Haleon’s brand power holds potential to support a moat, and intangible assets (largely patents) should support Glaxo’s wide moat following the Haleon divestment.