I recently took a look at AstraZeneca‘s prospects for 2014, and I’m feeling pretty positive about it. But what about its FTSE 100 stablemate, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US)?
Here’s how Glaxo has done over the past five years, with a look at the latest forecasts for the next three:
| Dec | Pre-tax | EPS | Change | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2008 | £6,659m | 104.7p | +6% | 57p | 4.4% | 1.8x | |
| 2009 | £7,891m | 121.2p | +16% | 61p | +7% | 4.6% | 2.0x |
| 2010 | £3,157m | 53.9p | -56% | 65p | +7% | 5.2% | 0.8x |
| 2011 | £7,698m | 114.1p | +112% | 70p | +8% | 4.8% | 1.6x |
| 2012 | £6,692m | 112.7p | -1% | 74p | +6% | 5.5% | 1.5x |
| 2013(f) | £5,465m | 112.6p | 0% | 78p | +5% | 4.8% | 1.4x |
| 2014(f) | £5,581m | 120.5p | +7% | 82p | +4% | 5.1% | 1.5x |
| 2015(f) | £6,434m | 132.5p | +10% | 87p | +6% | 5.4% | 1.5x |
The big problem with AstraZeneca was that it lost exclusivity on a number of key drugs and fell off the so-called ‘patent cliff’. But I was pleased with the firm’s recovery plan to return to its core strengths, and I think that should lead it to a positive 2014.
Blockbuster
So how does GlaxoSmithKline compare? Well, for starters, it wasn’t affected so badly by the patent cliff. Glaxo had been expanding from the ‘blockbuster drug’ model in recent years and has been embracing fancy newer biotechnology.
To do that, it has been busy on the acquisition front, where it has been considerably more successful than its rival.
Glaxo also responded to patent protection expiry in a more timely manner, and its drugs pipeline is looking pretty strong.
Although some people are suggesting that the era of major drugs is coming to an end, to be replaced with Star Trek style “We just need to resequence his genes, Jim” treatments, I think they’re seriously premature — we’ll be needing good old-fashioned chemical drugs for a few decades yet.
Stick that in your pipeline
In its third-quarter update released in October, Glaxo told us it had received four new approvals for treatments for HIV, flu, cancer and asthma. There were also several positive FDA recommendations, and the firm submitted three new filings, with further progress since.
And in 2014, Glaxo is hoping to file the world’s first preventative vaccine for malaria for approval — and that could be a biggie.
The company says it is on for core EPS growth of 3-4% for the full year, although analysts are expecting no overall EPS movement. But growth is expected to accelerate, in both earnings and dividends, over the following two years.
That all leads to a forecast P/E of only 12 for 2015, with a predicted dividend of 87p per share providing a yield of 5.4% on today’s share price of 1,619p.
The shares look cheap
To me that makes the shares too cheap, which is why I’m happy to have some in the Fool’s Beginners’ Portfolio — we’re only about 7.5% up since adding them back in June 2012, but I’m satisfied with the long-term prospects and I can see a happy year for GlaxoSmithKline in 2014.
Verdict: The pipeline is set to deliver!
