JP Morgan Gets Bearish on GlaxoSmithKline; Says 2013 Earnings are at Risk (GSK)

U.K.-based pharmaceutical giant GlaxoSmithKline plc (GSK) on Wednesday caught a big downgrade from analysts at JP Morgan.

The firm slashed its rating on GSK from “Neutral” to “Underweight,” noting worries about the company’s upcoming earnings.

A JP Morgan analyst commented, “With material risk to 2013 earnings, no imminent positive catalysts, and almost no upside to our new PT, we downgrade to Underweight. GSK is entering an investment phase. After reassessing the investment required to execute on the pipeline, already taken for granted by consensus, we now expect Operating margins to contract, rather than expand in 2013, and we now forecast a 2013 Operating margin 200bps below consensus. We see earnings risk in 2013, with material Operating profit and earnings growth unlikely for at least a year further out than is currently forecast by consensus (which expects topline growth and margin expansion in 2013).”

GlaxoSmithKline shares fell 53 cents, or -1.2%, in premarket trading Wednesday.

The Bottom Line
Shares of GlaxoSmithKline plc (GSK) have a 4.78% dividend yield, based on last night’s closing stock price of $46.07. The stock has technical support in the $43-$44 price area. If the shares can firm up, we see overhead resistance around the $48-$50 price levels.

GlaxoSmithKline plc (GSK) is not recommended at this time, holding a DARS™ Rating of 3.4 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

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