Around £22 now, GSK’s share price looks 50% undervalued to me after strong 2025 results

GSK’s (LSE: GSK) share price has rallied strongly since its full-year 2025 results were released on 4 February. However, the market is still seriously undervaluing the pharmaceutical giant’s improving fundamentals and long-term earnings power, in my view.

The group is delivering consistent growth across Specialty Medicines and Vaccines, supported by rising margins and strong cash generation.

So, how high do I think the shares will go?

Strong earnings growth

Earnings (‘profits’) growth is ultimately what powers any company’s share price over the long run. A risk here for GSK is litigation arising from any of its products, which could be costly to deal with. Even so, the firm forecasts core operating profit growth of 7%-9% this year and more than £40bn in sales by 2031.

The single biggest driver here is likely to remain Specialty Medicines, which delivered 17% year-on-year growth in 2025. Importantly for GSK’s long-term outlook, the division is margin‑accretive and high‑growth. It is also central to its repositioning following the 2022 demerger of Haleon. GSK’s focus as a pureplay pharma and vaccines business means a cleaner structure that should support better margins and more predictable cash generation. 

Meanwhile, the HIV portfolio remains a major profit centre with strong brand loyalty and long product cycles. Sales surged 11% year to £7.7bn, with long-acting treatments and pre-exposure prophylaxis (medicines taken before someone is exposed to HIV) being key future growth drivers.

Even longer term, the oncology pipeline is accelerating, with 5 FDA approvals last year.Two major new approvals are expected so far this year — bepirovirsen forchronic hepatitis B, and tebipenem for complicated urinary tract infections.

How were the results?

Turnover rose 7% to £32.667bn, driving core operating profit 11% higher to £9.783bn. This reflected strong momentum in Specialty Medicines and Vaccines, supported by higher royalty income and disciplined reinvestment in the advancing R&D pipeline.

Core operating margin increased 1.1 percentage points year on year to 29.9%. This was driven by the mix shift towards higher‑margin Specialty Medicines and Vaccines, alongside continued operating leverage. And core earnings per share rose 12% to 172p.

Cash generated from operations increased 14% to £8.943bn. This underlined the group’s strong cash conversion and can be a major driver for growth in itself.

How high could the shares go?

A discounted cash flow (DCF) analysis identifies where a stock should trade by projecting future cash flows and ‘discounting’ them back to today. Analysts’ DCF modelling varies — some more conservative than mine, others less so — depending on the variables used.

However, based on my DCF assumptions — including a 7.2% discount rate — GSK shares could be 50% undervalued at their current £22.13 price.

This implies a ‘fair value’ of around £44.26 per share — double where the stock trades today.

The gap between GSK’s price and value is crucial for long-term investors. This is because asset prices tend to converge to their fair value over time.

Consequently, the huge gap here suggests a potentially terrific buying opportunity to consider today if those DCF assumptions hold.

My investment view

Given the extreme DCF undervaluation, supported by strong earnings growth prospects, I will be adding to my holding in the stock soon.

I also think the shares are worthy of other investors’ attention for the same reasons.

The post Around £22 now, GSK’s share price looks 50% undervalued to me after strong 2025 results appeared first on The Motley Fool UK.

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Simon Watkins has positions in GSK. The Motley Fool UK has recommended GSK and Haleon Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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