GlaxoSmithKline (GSK) Stock Prepares to Rally, Shares Could Advance 25%
NEW YORK (TheStreet) -- GlaxoSmithKline (GSK) - Get Report topped out in February, March, and April, but it has since put in a tradable low that can support a respectable rally that could carry into early 2016.
We have a number of positive chart signals for GSK in the chart above. Prices have rallied above and retested the 50-day simple Moving Average (MA). The 50-day average has begun to flatten and could soon rise signaling a belated--belated because moving averages follow the trend with a lag--uptrend. The downtrend from the March high has been broken, and we can see a bullish divergence in August and September between prices making lower lows and the momentum study making a higher low. The On-Balance-Volume (OBV) line on this time frame has not yet turned up.
This three-year weekly chart of GSK, above, is more positive. Prices have rallied to the underside of the 40-week MA and could soon close above it. The OBV line on this time frame has turned up nicely, confirming the price advance. Lastly, there is a bullish divergence on a bigger time scale comparing the 2014 decline to the decline this year. Strategy: Traders could go long GSK at current levels using a sell stop just under $40. We look for a rally into the $50-$55 area for this drug stock. You can take GSK with or without a spoonful of sugar.
Separately, TheStreet Ratings team rates GLAXOSMITHKLINE PLC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
We rate GLAXOSMITHKLINE PLC (GSK) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and expanding profit margins. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- GSK's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 1.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, GLAXOSMITHKLINE PLC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for GLAXOSMITHKLINE PLC is rather high; currently it is at 68.33%. Regardless of GSK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.23% trails the industry average.
- GLAXOSMITHKLINE PLC's earnings per share declined by 20.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, GLAXOSMITHKLINE PLC reported lower earnings of $1.77 versus $3.68 in the prior year. This year, the market expects an improvement in earnings ($78.26 versus $1.77).
- The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and the Pharmaceuticals industry average. The net income has decreased by 17.7% when compared to the same quarter one year ago, dropping from $1,147.39 million to $943.74 million.
- You can view the full analysis from the report here: GSK