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3 Things That Say GlaxoSmithKline plc Is A Buy

GlaxoSmithKlineWhat can you say about the UK’s biggest listed pharmaceuticals company, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US)?

Well, having the company in the Fool’s Beginners’ Portfolio, reckon I can say it’s cheap! Here are three things that would make me add GlaxoSmithKline if it wasn’t already there:

1. Fundamentals

Quality companies are often rated on higher-than-average P/E valuations, and they deserve to be — strong management, growth potential, and handsome cash rewards are all worth paying a bit extra for.

But compared to a FTSE 100 long-term average P/E of around 14, Glaxo’s forward P/E of 14.9 for this year followed by 13.7 for 2015 looks modest to say the least. Earnings growth year-on-year is erratic in this business, but Glaxo’s forecast earnings per share (EPS) this year of 81p would be a third higher than in 2009, which really isn’t bad over five years.

And that’s a company paying dividend yields in excess of 5%, with the annual cash covered around 1.3 to 1.5 times by earnings.

2. Pipeline

Last year was described as an “exceptional” one for R&D by the firm, seeing approvals for 6 major products and 5 additional regulatory filings completed, new product launches in Respiratory, Vaccines, HIV and Oncology, and 2 significant approvals and 7 potential new products in late-stage development in Respiratory.

We also heard of the likelihood of Phase III data for 6 potential new drugs and vaccines and around 10 NME Phase III starts across 2014 and 2015.

And at Q1 time this year, the firm reported an impressive list of pipeline milestones achieved since year-end — far too much for me to cover here.

3. Acquisition

The blockbuster drugs model isn’t the only way forward, and forays into new biotechnology are vital. And Glaxo has always been good at that, in a way that rival AstraZeneca never managed to emulate. Glaxo’s financial muscle means it can snap up promising new companies when it sees them, and it can integrate them relatively cheaply — and the firm is not scared to divest itself of products or divisions that do not come up to scratch.

Glaxo is in the enviable position of being able to continue its “ongoing commitment to a growing dividend, further share buy-backs and bolt-on acquisitions whichever offers the most attractive return“, as chief executive Sir Andrew Witty said in last year’s results announcement.

At 1,540p, GlaxoSmithKline still looks like a long-term Buy to me.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool recommends GlaxoSmithKline.