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GlaxoSmithKline’s Valuation Compared to Its Peers

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GlaxoSmithKline’s valuation

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

The fundamental factors affecting stock prices and valuation include the performance of existing products, new and existing collaborations, acquisitions and divestments, and other factors such as the results of clinical trials and product approvals.

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

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Forward PE multiple

As of February 13, 2017, GlaxoSmithKline is trading at a forward PE multiple of 14.2x. That’s slightly lower than the industry average of 15.3x. Forward PE multiples for Sanofi (SNY), Novo Nordisk (NVO), and Novartis (NVS) are 13.8x, 15.5x, and 15.6x, respectively.

EV-to-EBITDA multiple

On a capital structure neutral basis, GSK currently trades at an EV-to-EBITDA multiple of ~9.0x, which is lower than the industry average of ~10.3x. Competitors such as Sanofi (SNY), Novo Nordisk (NVO), and Novartis (NVS) have forward EV-to-EBITDA multiples of 9.8x, 8.5x, and 14.5x, respectively.

Analyst recommendations

According to data on February 13, 2017, GSK stock has risen ~4.3% over the last 12 months. Analysts estimate that the stock has the potential to return ~16.7% over the next 12 months. Their recommendations show a 12-month target price of $47 per share compared to $40.28 on February 10, 2017.

Also, ~50.0% of Wall Street analysts are recommending a “buy” for the stock, and 50.0% are recommending a “hold.” Changes in analysts’ estimates and recommendations are based on changing trends in the stock.

To divest the risk, you can consider ETFs such as the First Trust Value Line 100 ETF (FVL), which holds 0.90% of its total assets in GlaxoSmithKline.

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