Zacks Investment Research downgraded shares of GlaxoSmithKline, plc (GSK) from NEUTRAL to UNDERPERFORM on July 24, 2012, with a target price of $41.00.
We are downgrading Glaxo to Underperform from Neutral. We expect second quarter earnings to be negatively impacted by currency translations. Additionally, a major part of Glaxo's revenues will be exposed to generic competition as multiple drugs are scheduled to lose exclusivity in the next few years. We expect the company's top line and gross margins to remain under pressure in the coming quarters. The US health care reform and EU pricing pressure will continue to affect sales. In view of these headwinds, we believe that Glaxo is overvalued at current levels. We have lowered our second quarter 2012 earnings estimates by 10 cents to $0.84 per ADS. We have also reduced our 2012 and 2013 earnings estimates. We see no near-term catalysts to drive the stock. Thus, we advise the investors to avoid the stock. Glaxo carries a Zacks #4 Rank (short-term Sell' rating).
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