GSK

GlaxoSmithKline (GSK) £11.40

As market volatility broke out last year, pharmaceuticals were seen as possible defensives, but this didn’t stop their share prices falling, and only in the past few weeks have AstraZeneca (AZN), Shire (SHP) and GlaxoSmithKline (GSK) posted good gains. The latter could now suffer as it looks fully valued against its EPS potential, argue Dresdner Kleinwort analysts, having downgraded GSK to sell, as earnings forecasts were reduced due to lower assumed sales volumes. The bank has cut its 2012 total sales by £1.3 billion, the EPS forecast by 10% and its five-year sales growth forecast from 3.2% to 2.4%. There is a risk that sales of Glaxo’s asthma drug, Advair, will be lower in 2008 as AstraZeneca’s Symbicourt advances. Advair loses its patent in 2010 and the launch of Horizon, which should be a substitute, could be delayed in Phase III until 2012 as the US Food and Drug Administration asks for tougher safety requirements. Competition is intensifying and that is likely to see an end to the recent share price rally.

ACTION: SELL GSK• Target £10.25 • Stop Loss £11.97

TIME TARGET: 5 WEEKS