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Head to Head: GlaxoSmithKline vs. AstraZeneca

http://www.fool.com/investing/international/2012/09/04/head-to-head-glaxosmithkline-vs-astrazeneca.aspx

G. A. Chester
September 4, 2012

LONDON -- In this series, some of your favorite FTSE 100 shares go head to head in a three-round contest for superiority.

In Round 1, the firms fight on earnings; in Round 2, on dividends; and Round 3 is a battle of the balance sheets. The winner will be the company that has racked up most points at the end of the contest.

Stepping into the ring today are pharma giants GlaxoSmithKline (LSE: GSK.L  ) and AstraZeneca (LSE: AZN.L  ) .

Fears about the global economy and the sovereign debt crisis in Europe have driven investor demand for defensive companies -- companies that perform reasonably well in all economic conditions -- including the big drugs groups.

The shares of GlaxoSmithKline and AstraZeneca have outperformed the FTSE 100 index over the last six months. The Footsie has dropped 3%, but Glaxo is up 3% and Astra has risen 5%.

Let's take our seats at ringside.

Round 1: Earnings

GlaxoSmithKline

AstraZeneca

Recent share price 1,433p 2,937p
Last year price-to-earnings ratio 12.6 6.3
Current year forecast P/E 12.3 7.9
Four-year average earnings per share growth (%) 19 14
Current year forecast EPS growth (%) 2 -19
Forecast operating margin (%) 29 30

Source: Digital Look. Winners in bold.

Astra takes points for an eye-catching "value" P/E rating, while Glaxo scores for superior earnings growth. Strictly speaking, Astra wins the round on forecast operating margin, but it's such a close call that it would be splitting hairs to declare the round anything other than a draw.

Round 2: Dividends

GlaxoSmithKline

AstraZeneca

Last year dividend yield (%) 4.9 6.0
Current year forecast dividend yield (%) 4.2 6.2
Four-year average dividend growth (%) 7 11
Current year forecast dividend growth (%) 6 4
Forecast dividend cover 1.6 2.0

Source: Digital Look. Winners in bold.

Glaxo's dividend yield, growth and cover are very decent, but Astra trumps its rival on almost every point. Only on current-year forecast dividend growth does Glaxo sneak a consolation point.

Round 3: Balance sheet

GlaxoSmithKline

AstraZeneca

Price-to-book ratio 8.0 2.5
Net gearing (%) 114 8

Source: Digital Look. Winners in bold.

Astra hammers Glaxo in the final round, giving it two winning rounds and one draw. Astra takes eight points, Glaxo three, and one point is shared.

Post-match assessment
On the face of it, this was a comfortable win for Astra. However, th