MENU

GlaxoSmithKline plc isn’t the only pharma stock I’d buy today

Image source: Getty Images.

The last time I covered GlaxoSmithKline (LSE: GSK) I took time to celebrate the company as one of the hottest dividend prospects on the FTSE 100.

While the pharma ace is predicted to keep dividends locked at 80p for yet another year, reflecting the drag on revenues growth created by patent expirations as well as the enormous capital drain of its operations, this figure still yields a splendid 5.6%.

What’s more, with GlaxoSmithKline’s bright product pipeline expected to start reaping rewards from next year, the number crunchers expect the firm to finally raise the dividend to 80.3p, a prediction that nudges the yield to 5.7%.

Profits at the Brentford business have swung higher and lower in recent years but I am confident that its rapidly-improving sales outlook should lead to sustained growth from this point onwards, beginning with the 4% advance forecast for 2019.

GlaxoSmithKline has a number of potential blockbusters in the bag, like its Shingrix shingles vaccine which is widely predicted to be a significant sales monster from the beginning of the next decade. And it has a stream of other drugs slated for release through to the mid-2020s in fast growing areas like HIV and respiratory, products that could fly off the shelves as global healthcare investment rises and spending particularly accelerates in emerging markets.

Of course the success of such drugs is a massive hypothetical, even if GlaxoSmithKline does boast a proud record of getting its drugs from lab bench to pharmacy shelf. However, I believe a forward P/E ratio of 13.2 times is still too cheap given the prospect of fat shareholder returns now and in the future.

Worth the premium?

Whether or not that Footsie giant floats your boat, I reckon you should take a close look at Dechra Pharmaceuticals (LSE: DPA).

The FTSE 250 business is a major player in the field of animalcare, a segment that is growing at a phenomenal rate as people shell out more and more for the wellbeing of their pets and drugs demand for farm animals grows.

Dechra saw revenues at constant currencies boom 11.2% during July-December to reach £194.1m as it reported strong sales growth from both its European and North American Pharmaceuticals markets. And the company’s lively M&A programme is likely to keep delivering handsome sales growth as its pipeline subsequently improves and its geographical footprint increases.

My view is shared by City analysts who expect the medicines mammoth to report earnings growth of 17% in the year to June 2018 and 18% in the following year.

And these forecasts lead to expectations of further exceptional dividend growth — fiscal 2017’s reward of 21.44p per share is anticipated to rise to 23.9p this year and to 26.3p in the following period. These figures yield a handy 0.9% and 1% respectively.

Dechra may be expensive on paper, the firm rocking up on a forward P/E ratio of 36.5 times. Still, I believe the company’s exciting growth strategy in a fast-growing industry makes it worthy of such a princely premium.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. There are no strings attached, simply click here for your free copy.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.