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Changes in GlaxoSmithKline’s Valuation after 2Q17

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GlaxoSmithKline’s valuation

GlaxoSmithKline (GSK) is a multinational pharmaceutical company headquartered in Brentford, Middlesex, United Kingdom. GlaxoSmithKline reports its financials in the pound.

GlaxoSmithKline surpassed Wall Street analysts’ revenue and EPS (earnings per share) estimates. It reported an EPS of 27 pence at revenues of 7.32 billion pounds—compared to the estimated EPS of 26 pence at revenues of 7.28 billion pounds during 2Q17.

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Forward PE multiple

As of August 30, 2017, GlaxoSmithKline is trading at a forward PE multiple of 13.3x, which is slightly lower than the industry average of 15.5x. The company is trading at a higher PE multiple than its peers Merck (MRK), Pfizer (PFE), and Novartis AG (NVS). They’re trading at forward PE multiples of 15.5x, 12.5x, and 16.6x, respectively.

EV-to-EBITDA

On a capital structure neutral basis, GlaxoSmithKline trades at ~8.9x, which is lower than the industry’s average of ~10.3x. Merck, Pfizer, and Novartis AG have forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples of 11.6x, 10.2x, and 15.6x, respectively.

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Analysts’ recommendations

According to data released on August 30, 2017, GlaxoSmithKline stock has fallen 8.4% in the last 12 months. However, the stock has risen ~3.1% year-to-date. Analysts estimate that the stock has the potential to return ~17.3% in the next 12 months. Analysts’ recommendations show a 12-month target price of $48.00 per share—compared to the last target price of $39.32 per share as of August 29, 2017.

There are four analysts tracking GlaxoSmithKline’s ADR listed on the NYSE. Two analysts recommend a “buy” and two analysts recommend a “hold.” The consensus rating for GlaxoSmithKline ADR stands at 2.00, which represents a moderate buy for long-term growth investors.

There are 30 analysts tracking GlaxoSmithKline stock listed on the London Stock Exchange. Of these analysts, 14 analysts recommend a “buy,” 14 analysts recommend a “hold,” and two analysts recommend a “sell.” The consensus rating on GlaxoSmithKline stock stands at 2.47, which represents a moderate buy for value investors.

To divest the risk, investors can consider ETFs like the VanEck Vectors Pharmaceutical ETF (PPH), which holds 4.7% of its total assets in GlaxoSmithKline. PPH also holds 6.9% in Novartis, 5.2% in Merck, and 5.5% in Pfizer.

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