So is GlaxoSmithKline a buy?
City analysts expect earnings per share to edge 2% higher in 2013, to 115 pence, before gaining traction thereafter — growth of 8%, to 125 pence, has been penciled in for 2014. The company is boosting R&D to counter the issue of IP expiration across many of its drugs, building a lucrative pipeline of new products to underpin long-term revenues, and six key compounds are currently undergoing regulatory testing.
The pharma giant has proved itself to be a reliable dividend builder in recent years, even in times of significant earnings pressure, and brokers expect last year’s 74 pence per share payout to increase to 78 pence per share and 81.9 pence per share this year and next. GlaxoSmithKline plc (ADR) (LSE:GSK) has also targeted between 1 billion pounds and 2 billion pounds of share buybacks this year to lift shareholder returns.
Prospective dividends for this year and next carry yields of 4.6% and 4.9%, far in excess of a forward dividend yield forecast of 2.4% for the entire pharmaceuticals and biotechnology sector, and above the FTSE 100’s 3.3% reading.
GlaxoSmithKline plc (ADR) (LSE:GSK) was recently dealing on a P/E ratio of 14.6 and 13.5 for 2013 and 2014, respectively, providing a massive discount to a prospective earnings multiple of 48 for the U.K.’s listed pharmaceuticals and biotechnology companies. I believe that improving earnings prospects, combined with a robust dividend policy, makes the pharma play an excellent stock pick.
The article Is GlaxoSmithKline an Exciting Emerging Market Play? originally appeared on Fool.com and is written by Royston Wild.
Fool contributor Royston Wild has no position in any stocks mentioned. The Motley Fool recommends GlaxoSmithKline.
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