GSK (NYSE: GSK) is not immune to the patent cliff faced by the pharmaceutical industry, but it is about as well prepared as it can be. The company faces a smaller impact than others, has years to go before the impact is felt, and is well on track to grow now and replace the lost revenue when patent expiry comes. 

With that in mind, the stock trades at a low 9X earnings and pays a solid 4%, making it an attractive play in the pharma/healthcare segment. Add in the low 0.66 beta, and GSK stock could be just what the Dr. ordered for winter 2023/2024. The low beta and high yield can help offset market downturns and reduce volatility within a portfolio while boosting its long-term return. 

GSK had a solid quarter; new products drive sales

GSK had a solid quarter, with revenue up 10% compared to last year on an FXN basis and ahead of the Marketbeat.com analysts' consensus. Revenue was driven by a 33% increase in Vaccine sales underpinned by the approval of Arexvy and only partially offset by declining COVID sales.

Arexvy is the 1st RSV vaccine approved by the FDA, which gives the company an advantage over competitors. Pfizer’s vaccine was also approved, but early indications are that Arexvy commands the lion’s market share. 

Sales of Arexvy topped £0.7 billion, coming close to established therapy Shingrex at £0.8 billion. Shingrex's growth was 15% for the quarter due to its preferred position. It is 1 of only 2 shingles vaccines in the US and the only 1 in use today. 

Margin news is also favorable to higher share prices. The company widened its gross and operating margin on growth leverage and sales of Arexvy, which are expected to gain traction in the coming quarters. The company expects peak sales to top $3 billion annually, which will be sustained until a better medicine is launched, and this could be a conservative estimate. 

Regardless, the company widened its adjusted operating margin by 15% and the adjusted EPS grew by 17% to top consensus and strengthen the growth and dividend outlook. Execs raised guidance for Q4 top and bottom-line results to a range with the low-end consistent with the previous high, and it is likely the guidance is cautious. Both Shingrex and Arexvy are gaining traction. Perhaps more importantly, FCF growth and cash flow conversion topped 100%. 

GSK is a high-yielding value in healthcare

GSK’s dividend can be variable quarterly but is reliable and offers a high yield compared to others in the pharma group. The payout in 2023 is on track to exceed 4%, with shares trading near critical support levels and long-term lows. The balance sheet is healthy, with over £8 billion in cash and securities and a manageable debt load. Leverage is running below 1.5X equity, with cash flow and margins on the mend. 

The analysts' activity in GSK this year is iffy at best. There are 7 current ratings but the indications are mixed with upgrades, price target increases, price target decreases, and a recently (in July) initiated Reduce. The takeaway is that little coverage has been released since the launch of Arexvy to include post-Q3 activity. The few showing up are reiterated Holds that assume fair value for the stock at current trading levels. 

The technical outlook: GSK at rock bottom

The price action in GSK popped in September following good news, but it has since retreated to critical support. Now, the market is showing signs of support at the critical level and may continue to rebound. In this scenario, the market may move above the 150-week EMA and up to test resistance at the 150-day EMA. If that level is broken, a sustained rally may take this market even higher. If not, GSK could remain range-bound near current levels until more news is available.