Glaxo Wellcome Shares Undervalued, Say Analysts

16 June 1996

Analysts at BZW Research believe the market is "significantly undervaluing" the shares of Glaxo Wellcome and recommend purchase of the stock, and analysts at Morgan Stanley are enthusiastic about the group's revenue potential from new products.

Sentiment towards GW's shares remains depressed due to the uncertainties surrounding the future US patent of Zantac (ranitidine), Steve Plag and James Dodwell at BZW point out, as well as concerns that new products will not fill the gap. They say the uncertainty on Zantac is unwarranted given that it is now well out of proportion with the likely impact that a successful defence, or otherwise, of the US patent will have on GW's future earnings and dividends stream.

They estimate that the retention of Zantac patent protection in the USA will alter compound earnings per share growth over the period 1995-2000 by less than 1% (10% vs 9.6% per annum). Furthermore, they say, the maximum absolute differential in earnings is equivalent to just 3.3 pence (in 1998) equating to just over 40 pence in the share price.

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