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Are These FTSE 100 Shares a Buy?

By Royston Wild - Apr 2, 2013 at 9:36AM

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Royston Wild studies GlaxoSmithKline, Tesco, Barclays, Aviva, and AstraZeneca.

LONDON -- I have recently been evaluating the investment cases for a multitude of FTSE 100 companies. Although Britain's premier index has risen 8.7% so far in 2013, I believe many London-listed stocks still have much further to run, while others are overdue for a correction. So how do the following five stocks weigh up?

GlaxoSmithKline (GSK -0.39%)
I reckon that accelerating product-development and moves into exciting new territories should barge GlaxoSmithKline back to growth over the medium term, underpinning its reputation as a dependable income play.

The company boasts an exceptional dividend-building record, even in times of earnings pressure. The pharma giant increased last year's payout to 74 pence from 70 pence in 2011 despite a declining bottom line, and this is expected to rise to 78 pence and 82.7 pence, respectively, in 2013 and 2014. And dividend yields during this period are expected to remain well ahead of the 3.2% FTSE 100 average, at 5.1% this year and 5.4% next year.

Earnings per share are predicted to rise 2% in 2013 following last year's 1% drop before accelerating 9% higher in 2014 as new products come online and offset the consequences of expiring IP. The firm's shares trade on a price-to-earnings ratio of 13.3 for this year and 12.2 for next year, which I consider a decent value given the dividend dependability and exciting growth prospects.

Tesco (TSCO -1.16%)
I am backing giant greengrocer Tesco to bounce back from increased competition from both high- and low-end competitors as it takes a step back from its international operations to boost activity back home.

City analysts expect EPS to slide 16% in the year ending February 2013, results for which are due on April 17, before hitting back in the coming years. Respective rises of 6% and 8% are predicted for 2014 and 2015.

Tesco is a favorite among income investors thanks to its generous dividend policy -- an anticipated dividend yield of 3.9% for 2013 is expected to climb to 4.1% in 2014 and 4.3% in 2015. And coverage of 2.1 times next year and 2.2 times in 2015 should provide investors with peace of mind, even in the event of fresh earnings attacks.

Sweetening the deal, the supermarket's stock currently changes hands on a lowly P/E rating of 11.5 for 2014 and 10.7 for 2015. This provides a chunky discount to a forward earnings multiple of 13 for the broader food and drug retailers sector.

Barclays (BARC 0.68%)
British high-street bank Barclays continues to endure a torrid time in the press, as its implication in the LIBOR-rigging scandal -- combined with PPI misselling practices and news of jumbo bonuses to its top brass -- has bashed its valued reputation.

Still, I believe the firm provides ripe investment opportunity moving forward. The company's U.K. retail operations have enjoyed a decent start to the year, while plans to significantly boost its exposure in the opportunity-rich regions of Africa should help to boost growth. Barclaycard is also revving up, with customers rising to 28.8 million in 2012 from 22.6 million in 2011.

Barclays is also stepping up cost-cutting measures in order to ease the burden on its balance sheet. EPS is forecast to rise 6% in 2013 before picking up speed to jump 20% the following year. The bank currently trades on a respective P/E of eight and 6.6 for these years, which represents bargain-basement territory -- the broader banking sector currently trades on a forward reading of 12.4.

Aviva (AV 1.42%)
I think uncertainty over Aviva's dividend policy should tempt investors to stay their hands for the time being. The life insurance giant is currently undergoing radical transformation following its recent financial difficulties, but until earnings turn around, future payout cuts could be on the horizon.

Projected dividend yields of 6.5% and 6.7%, respectively, for 2013 and 2014 are way ahead of the average yield for the U.K.'s 100 largest-listed firms, but Aviva's decision to slash last year's dividend to 19 pence from 26 pence in 2011 has made income investors jittery.

City forecasters expect EPS to fall again in 2013 to 44.2 pence from 44.7 pence last year. Aviva is trading on a P/E ratio of 6.7 for 2013 and 6.3 for 2014, down massively from a forward earnings multiple of 12.9 for the life insurance sector. However, the firm's recent record of slicing dividends -- it has cut the payout three times this century -- coupled with a cloudy earnings outlook makes the firm's cheap rating fully justified, in my opinion.

AstraZeneca (AZN 0.02%)
AstraZeneca reached a settlement last week with Actavis in its patent infringement case in the U.S. over its Crestor cholesterol drug, but I believe the issue of ongoing patent expiries and lack of a meaty product pipeline should continue to squash revenue over the medium term.

Patent issues caused group revenue to collapse 17% to almost $28 billion in 2012, pushing pre-tax profit 38% lower to $7.7 billion. Following last year's colossal 12% EPS drop, City analysts expect this to worsen in 2013, with an 18% fall penciled in. A further 3% drop is expected in 2014.

Significant restructuring work is under way to address the lack of new product streams, but clearly this will not lead to potentially blockbusting results until the longer term. AztraZeneca trades on a P/E rating of 9.6 this year and 9.8 next year, which compares favorably to a gargantuan forward reading of 32.8 for the wider pharmaceuticals and biotechnology sector.

Although the firm currently offers chunky dividend yields of 5.4% this year and 5.5% next, just less than twice covered, bouts of fresh near-term pressure could put shareholder payouts in jeopardy.

Zone in on other sterling stocks
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Stocks Mentioned

AstraZeneca PLC Stock Quote
AstraZeneca PLC
$10,600.00 (0.02%) $2.00
GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$1,775.00 (-0.39%) $-7.00
Tesco PLC Stock Quote
Tesco PLC
$255.30 (-1.16%) $-3.00
Barclays PLC Stock Quote
Barclays PLC
$163.88 (0.68%) $1.10
Aviva plc Stock Quote
Aviva plc
$434.80 (1.42%) $6.10

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