In December, I boldly hailed GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) as the one stock I would buy for 2015.
I had been singing its praises since last October when it was trading at 12 times earnings, which is cheap for Glaxo.
By December, the share price had picked up 13% from its mid-October lows. But I reckoned there was more to come, and so far I’ve been proved right.
Glaxo’s share price is up another 18% so far this calendar year, which for a long-term income play like this one is rather juicy growth.
I thought Glaxo was a great buy in October, a good buy in December. But is it a buy at all at today’s price?
Go Glaxo!
I singled Glaxo out of the FTSE 100 because I hoped the worst of the Chinese bribery scandal was over, and it would be able to reverse falling US sales, which caused almost as much damage to the share price.
Glaxo’s £1 billion restructuring programme, new lung treatments, encouraging early Ebola vaccine trials, emerging markets sales growth and blossoming ViiV Healthcare businesses all looked promising to me.
I reasoned that you don’t get many opportunities to buy a top stock like Glaxo at a reduced price, and this opportunity shouldn’t be missed.
Poor Results
Yet while the share price growth figure vindicates my faith, Glaxo’s full-year results, published last month, probably don’t.
Annual revenues declined 3% to £23bn, hit by currency headwinds to a degree, but also weak sales of respiratory drug Advair. Turnover fell a worrying 10%, even at constant currency rates.
Earnings per share were just 95.4p, against the 120p markets had predicted one year earlier. Yet still the stock has risen.
Pipe Up
There was some positive news in there, as Glaxo’s plan to create a new consumer healthcare business with Novartis is still on course for completion in the first half of this year, and could trigger £4bn of shareholder returns.
The big question remains whether Glaxo can replenish its drugs pipeline, to keep up with patent expiries. Management is confident, but there is a long way to go.
Trading at a more familiar valuation of 17.1 times earnings and yielding 4.91%, the once-in-a-blue-moon Glaxo buying opportunity has passed.
It still deserves a place in your portfolio, but I no longer feel the need to make a big noise about it. My work here is done.
