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How GlaxoSmithKline’s Valuation Changed after 1Q17


May. 31 2017, Published 4:04 p.m. ET

A look at GlaxoSmithKline

Headquartered in Brentford, Middlesex, England, GlaxoSmithKline (GSK) is a British multinational pharmaceutical company. For 1Q17, it reported EPS (earnings per share) of 25 pence at revenues of 7.4 billion pounds.

The above graph shows analyst estimates for EPS and actual EPS for GlaxoSmithKline for the past nine quarters. Now let’s look at GlaxoSmithKline’s valuation multiples.

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Forward PE

PE (price-to-earnings) multiples represent what one share can buy for an equity investor. GlaxoSmithKline is trading at a forward PE multiple of 15.4x, which is lower than the industry average of 16.4x as of May 31, 2017. Other competitors such as Pfizer (PFE), Sanofi (SNY), and Novo Nordisk (NVO) are trading at forward PE multiples of 12.2x, 15.2x, and 18.1x, respectively.

EV-to-EBITDA multiples

On a capital structure neutral basis, GSK currently trades at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~9.4x. That’s lower than the industry average of ~11.0x. Other competitors such as Pfizer (PFE), Sanofi (SNY), and Novo Nordisk (NVO) are trading at forward EV-to-EBITDA multiples of 9.9x, 10.9x, and 9.9x, respectively.

Analyst recommendations

According to data as of May 31, 2017, GSK stock has risen ~1.5% over the past 12 months. Analysts estimate that the stock has the potential to return ~9.5% over the next 12 months. Analyst recommendations show a 12-month target price of $47.55 per share compared to the last price of $43.41 per share on May 30, 2017. Also, ~50.0% of Wall Street analysts recommend a “buy,” and 50.0% recommend a “hold.” The consensus rating for GlaxoSmithKline stands at 2.0, which represents a moderate buy for long-term growth investors.

To divest the risk, you can consider ETFs such as the Vanguard FTSE All-World Ex-US ETF (VEU) which holds 0.60% of its total assets in GlaxoSmithKline.


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