Why GlaxoSmithKline (GSK) Stock Is Falling Today

NEW YORK (TheStreet) -- Shares of GlaxoSmithKline Plc (GSK) are down 0.71% to $46.45 in pre-market trade after it was reported that a U.S. anti-bribery probe into the company touched on the firm's Chinese consumer healthcare business in 2012, internal documents show, suggesting the drugmaker's compliance problems in China could be wider than previously revealed, Reuters reports.

GSK confirmed it had conducted an investigation into procurement practices in consumer healthcare in China, but said it did not find any "unethical conduct". It said the inquiry was unrelated to a Chinese criminal investigation into corruption in its pharmaceuticals division that was made public last year, Reuters said.

Three "preservation notices" seen by Reuters show GSK was conducting a focused investigation into specific people and suppliers in China at least as far back as 2012.

 
The investigation was related to a Justice Department and SEC inquiry into possible violations of the anti-bribery Foreign Corrupt Practices Act.
 
"We rate GLAXOSMITHKLINE PLC (GSK) a BUY. This is driven by a number of strengths, 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 notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • 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.
  • GLAXOSMITHKLINE PLC's earnings per share declined by 26.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GLAXOSMITHKLINE PLC increased its bottom line by earning $3.68 versus $2.92 in the prior year. This year, the market expects an improvement in earnings ($97.40 versus $3.68).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 4.6%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for GLAXOSMITHKLINE PLC is currently very high, coming in at 70.72%. 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 11.43% trails the industry average.
  • The share price of GLAXOSMITHKLINE PLC has not done very well: it is down 7.26% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • You can view the full analysis from the report here: GSK Ratings Report
EXCLUSIVE OFFER: See inside Jim Cramer's multi-million dollar charitable trust portfolio to see the stocks he and Stephanie Link think could be potentially HUGE winners. Click here to see the holdings for FREE

More from Markets

Week Ahead: Trade Fears and Stress Tests Signal More Volatility To Come

Week Ahead: Trade Fears and Stress Tests Signal More Volatility To Come

Trump Takes Aim at Auto Imports; Markets End Mixed -- ICYMI

Trump Takes Aim at Auto Imports; Markets End Mixed -- ICYMI

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

Flashback Friday: The Market Movers

Flashback Friday: The Market Movers