The 2013 Outlook for GlaxoSmithKline

LONDON -- In this festive mini-series, we look at the 2013 prospects for some of your favorite FTSE 100 shares. Today, it's the turn of GlaxoSmithKline  (LSE: GSK  ) (NYSE: GSK  ) , whose shares have fallen 7% during the course of 2012 compared with a 6% rise for the Footsie.

In a Q3 update released at the end of October, Glaxo reported group sales down 5%. The drop was partly because of demanding comparisons with the prior year Q3, but also to continuing weakness and additional austerity measures in Europe, where sales were down 9%. In contrast, there was good growth in emerging markets, developed markets outside of Europe and in the consumer health care division.

Glaxo expects sales for the full year to be "broadly in line with 2011, absent a further deterioration in Europe." So, flat sales -- and a modest drop in earnings per share, according to analyst forecasts -- are the things to look out for when the company announces its annual results in early February.

Despite the uninspiring numbers for 2012, which are not likely to improve much in the immediate future, Glaxo is delighted with the recent progress of its late stage drugs pipeline, saying: "This year has been exceptional with output better than in any previous period for the company." That bodes well for the longer-term future, and management is already actively preparing for the rollout of multiple new products.

Shareholders can look forward to plenty of drugs pipeline news in 2013, and also to more news on Glaxo's strategy of diversifying further into emerging markets and consumer health care. Just last month, the company announced plans to increase its ownership of its publicly listed Nigerian and Indian consumer health care subsidiaries to the maximum permitted under the rules of the two countries' stock exchanges.

So, can Glaxo's shares improve on their lackluster 2012 performance in 2013? Analysts are forecasting EPS and dividend growth a little above inflation for the year ahead. At a recent share price of 1,364 pence, the forward price-to-earnings ratio is not much more than 11, while the dividend yield is 5.7%.

I'd say the P/E is about fair, given the possibility of further deterioration in European markets on one hand and, on the other, the potential for positive newsflow on new drugs, emerging markets, and consumer health care.

Whatever I may think about the P/E, though, the dividend yield and the prospect of the dividend growing ahead of inflation look mighty attractive. The share price could move higher in 2013, but if it doesn't then the dividend will provide investors with nourishment while awaiting the sustained improvement in long-term financial performance and overall returns to shareholders that Glaxo's management seems confident of delivering.

Ace City investor Neil Woodford has trounced the market over the past 15 years by focusing on strong cash-generating and dividend-paying companies such as Glaxo. In fact, Glaxo is currently one of Woodford's biggest holdings.

If you're interested in learning more about this master investor's enormously successful strategy – and about the blue-chip companies he currently favors -- I recommend you download the Motley Fool's exclusive report, "8 Shares Held By Britain's Super Investor."

This report is free to private investors for a limited time only, but it can be in your inbox in seconds: simply click here.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2173175, ~/Articles/ArticleHandler.aspx, 10/20/2014 7:36:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement