Why Shire PLC Has Beaten AstraZeneca plc And GlaxoSmithKline plc In 2014

If you invest in pharmaceuticals, Shire (LSE: SHP) is the one you should have bought this year.

It’s up 60% in the past 12 months to 4,395p, easily beating the FTSE 100‘s big two — AstraZeneca (LSE: AZN) (NYSE: AZN.US) is up a still-nice 32% to 4,618p, but GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) shares have lost 11% to 1,378p.

Rising profits

Looking at Shire’s past results, it’s not surprising the shares have done well. For the year ended December 2013, Shire reported a 77% rise in earnings per share (EPS) from continuing operations, and an underlying non-GAAP rise of 23%. That came from a 9% rise in revenue to $4.9bn, with sales of a number of key treatments for ADHD, ulcerative colitis and a wide variety of other ailments growing nicely.

The firm also has an impressive number of candidates in late stages of its development pipeline, and that’s helped inspire analysts to forecast a further 35% rise in EPS for 2014. So far this year things are looking good, with total revenues at Q3 time up 32% over the same period last year.

It’s not really surprising, then, that there’s a pretty heavy Buy consensus amongst analysts at the moment.

A revolution

Over at AstraZeneca, that 32% rise is a result that few of us would have expected so soon when new CEO Pascal Soriot took over in October 2012. At the time, the company was struggling with the loss of patent protection on a number of key drugs and the resulting competition from generic alternatives, and its development pipeline was looking unimpressive.

AstraZeneca is not back to rising EPS yet, and there’s a fall of 18% expected this year. But the about-turn that Mr Soriot has effected in such a short time has been dramatic. Non-key assets have been offloaded, AstraZeneca’s pipeline is looking dramatically better now, and we might even see EPS growth next year — about two years ahead of earlier expectations.

The recovery has put the shares on a forward P/E of 18 based on the current 2015 consensus, but coupled with a decently-covered 3.7% dividend yield and the potential value of the firm’s late-stage pipeline candidates, that could prove to be good value.

Things are looking a bit tougher at GlaxoSmithKline, and the failure to sell off a portfolio of its older drugs earlier this month didn’t impress investors — the price has dipped since it was announced.

Cheaper valuation

At the nine-month stage, revenues were down 14%. But that was in line with expectations, and there’s an end to falling EPS already forecast for 2015 (while for AstraZeneca it’s still just a hope). Dividends should yield around 5.5%, although they won’t be as well covered, and the shares are on a fairly modest P/E of just over 15.

On the whole, all three of these look like good prospects — but 2015 could easily end up belonging to Shire again.

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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.