Why AstraZeneca plc Should Beat GlaxoSmithKline plc In 2015

If you’d asked me a couple of years ago which of our two big FTSE 100 pharmaceuticals companies had the next five years sewn up, I’d have gone for GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) over AstraZeneca (LSE: AZN) (NYSE: AZN).

Both were facing “patent cliff” losses of protection for some key drugs and increasing competition from generics, but GlaxoSmithKline looked to be making better progress in adapting to the new world order. Its pipeline looked strong, but more importantly, it was doing much better on the acquisition front.

When you have the cash that companies like these two can muster, you can let the small start-ups take the risk and make the important discoveries, then buy them out and be able to stump up the cash to take things all the way to clinical use. AstraZeneca’s acquisition attempts looked pitiful by comparison.


But if we wind forward today we find an AstraZeneca transformed — and it’s all down to new boss Pascal Soriot, who took the helm in October 2012 with the task of turning it around. His focus on returning to core strengths has seen AstraZeneca’s pipeline burgeoning with new candidate drugs, and at Q3 time it included “121 projects, of which 107 are in the clinical phase of development“, with “14 NME projects currently in late stage development, either in pivotal studies or under regulatory review“.

Along with that, the company lifted its revenue and core EPS guidance for the full 2014 year, saying it expects revenue to grow in low single digits at constant exchange rates, with core EPS now expected to fall by only around 10%.

And AstraZeneca is returning to successful acquisitions too.

Earnings growth in 2015?

Analysts are forecasting an 18% overall fall en EPS this year followed by another 4% drop next year, but the story at AstraZeneca has been one of continuously improving optimism. At first, a return to earnings growth by 2017 had been the hope, but there’s now a good chance it will happen in 2016 — and it would only take a relatively modest further improvement for us to actually see growth in 2015!

And that’s starting to get back on terms with GlaxoSmithKline, which is forecast to report the same 18% fall in EPS as AstraZeneca for this year but with a 1% rise penciled in for next — and this time next year, I wouldn’t be surprised to see GlaxoSmithKline forecasts falling behind AstraZeneca’s.

In P/E terms, AstraZeneca is now only a little ahead of GlaxoSmithKline on a multiple of 17.7 against 16.3 — and that’s with AstraZeneca’s shares up 33% in 12 months to 4,671p against a 6% fall to 1,485p for GlaxoSmithKline.

AstraZeneca again

Dividends are better at GlaxoSmithKline, with a forecast yield of 5.4% against 3.7%, but I expect those to be much closer once AstraZeneca’s recovery picks up more strength.

I really can see AstraZeneca shares carrying on from where they left off, and beating GlaxoSmithKline again in 2015.

Would AstraZeneca or GlaxoSmithKline fit well in a decent retirement portfolio? I reckon both would reward you well.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.