Should You Dump AstraZeneca plc In Favour Of GlaxoSmithKline plc?

AstraZeneca plc (LON: AZN) currently trades at a premium to GlaxoSmithKline plc (LON: GSK); does it deserve it?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

gskGlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) and AstraZeneca (LSE: AZN) (NYSE: AZN.US) have both had very different fortunes since the beginning of the year. On one hand, AstraZeneca’s shares have surged higher around 15%, beating the FTSE 100 approximately 14%. On the other, Glaxo has floundered, rising a lacklustre 5%.

But after this impressive performance, are AstraZeneca’s shares overvalued and should you dump your holding in favour of larger peer Glaxo? 

A quick look at valuation

The quickest way to gauge whether or not AstraZeneca is overvalued is to take a look at the company’s valuation, although this is by no means a definitive analysis.

At present, Glaxo is currently trading at a forward P/E of 15 for 2014, in comparison, AstraZeneca is trading at a forward P/E of 15.7, which does not seem overly expensive at first glance.

However, AstraZeneca’s earnings per share are expected to fall around 14% during 2014, while Glaxo’s EPS are forecast to remain unchanged, implying that AstraZeneca should actually be trading at a discount to Glaxo. Additionally, Glaxo’s dividend yield now stands at 4.7%, AstraZeneca’s yield currently sits at 4.1%, rising to 4.2% next year. 

The fundamentals support Glaxo

AstraZeneca has been grappling with sliding sales for some time now, thanks to the loss of exclusive manufacturing rights for a number of its treatments. Actually, according to the company’s own management, sales are going to continue to decline for some years to come. Specifically, AstraZeneca’s CEO Pascal Soriot does not expect AstraZeneca’s revenue to return to 2013 levels until 2017. This implies that the market is placing too much of a premium on the company.

Further, AstraZeneca only brought 11 treatments to Phase III trials during 2013 but none of these new products will file for regulatory approval before 2016. In comparison, Glaxo had five new drugs approved for sale during 2013 and a further 40 are in late stage development. With this being the case it would appear silly to suggest that AstraZeneca should trade at the same valuation as Glaxo, which it currently does. 


All in all, looking at the evidence above, I feel that perhaps investors should dump AstraZeneca in favour of Glaxo.

With multiple new treatments coming to market over the next few years, sales continuing to expand and a dividend yield of 4.7%, Glaxo would appear to be a better choice than AstraZeneca, which continues to report sliding sales and boasts an unimpressive treatment pipeline. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Rupert does not own any share mentioned within this article. The Motley Fool has recommended shares in GlaxoSmithKline. 

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »