How GlaxoSmithKline’s Valuation Compares to Its Peers’



GlaxoSmithKline’s valuation

GlaxoSmithKline (GSK) is a British multinational pharmaceutical company with headquarters in Brentford, England.

The fundamental factors affecting stock prices and valuations include the performances of existing products, new and existing collaborations, acquisitions and divestments, and the results of clinical trials and product approvals.

From an investor’s point of view, the forward PE (price-to-earnings) and EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples are the two best valuation multiples to use when valuing large pharmaceutical companies, given the relatively stable and visible nature of their earnings.

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Forward PE

On December 28, 2016, GlaxoSmithKline was trading at a forward PE of 13.5x, slightly lower than the industry average of 14.4x. The company was trading at a higher PE than its peers Sanofi (SNY), Novo Nordisk (NVO), and Novartis (NVS), which had forward PEs of 13.5x, 15.6x, and 15.0x, respectively.


On a capital-structure-neutral basis, GSK is currently trading at ~9.2x, lower than the industry average of ~10.1x. Other competitors Sanofi, Novo Nordisk, and Novartis have forward EV-to-EBITDA multiples of 9.9x, 9.1x, and 14.5x, respectively.

Analysts’ recommendations

According to data released on December 28, 2016, GSK’s stock has fallen ~5.1% over the last 12 months. Analysts estimate that the stock has the potential to return ~26% over the next 12 months. Analysts’ recommendations show a 12-month target price of $48.25 per share for the company, compared to its price of $38.28 per share on December 27, 2016.

Also, ~50% of analysts recommend “buys” on GSK, and 50% recommend “holds.” Changes in analysts’ estimates and recommendations are based on changing trends in the stock’s price.

To divest risk, investors can consider ETFs such as the SPDR S&P International Health Care ETF (IRY), which holds 5.1% of its total assets in GlaxoSmithKline.


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