2015 is shaping up to be a pretty terrible year forGlaxoSmithKline(LSE: GSK) (NYSE: GSK.US). Year to date, the companys shares havehardly budgedwhile the rest of the FTSE All World Pharma & Biotech sector has risen by 10%.
And now Glaxos shares are closing in on their 52-week low of 1,296p, after falling by 14% during the past 12 months.
But should investors look to buy on this weakness or could Glaxos shares fall further?
Investor concern
Investors have turned their back on Glaxo during the past 12 months for several reasons.
Firstly, theres been plenty of speculation that the company is contemplating a dividend cut. As a result, investors have been selling up and searching for a safer yield elsewhere.
Secondly, theres been some concern about Glaxos new business strategy. In particular, the group has recentlyreduced its dependence on the lucrative pharmaceuticalmarketby increasing investment in the slow-and-steady vaccines and consumer healthcare market.
For example, a$20bn asset swap with Novartis last year saw Glaxotrade its lucrative cancer drug portfoliofor vaccines and consumer healthcare assets.
Management targets
Investors concerns regarding Glaxos change of strategy and dividend sustainability are wellfounded.
However, the companys management has recently come out to dispel these worries.
Its expected that Glaxos core earnings per share will decline by15% this year. But from 2016to 2020,group revenue is expected to grow at a compound annual growth rate of low-to-mid single digits. Whats more, over the same period, core earnings per share are expected to expand at a rate in themid-to-high single digits.
Cost savings will help the group maintain its dividend payout. Glaxos management has stated that a per-share payout of at least 80p is guaranteed for the next three years.
At present levels, a payout of 80p per share translates into a dividend yield of 5.9%.
Impressive pipeline
Concerns over Glaxos business strategy also seem to be overdone. Glaxo has had more drugs approved by regulators than any other pharmaceutical company over the last five years. And this trend is set to continue.
City analysts who specialise in the pharmaceutical sector have commended Glaxos treatment pipeline, rating it as one of the best in the business. Glaxos R&D spending currently amounts to 3.5bn per annum.
Also, Glaxo is hunting out the best joint-venture opportunities in the market.
This week the company announced thelaunch of three early-stage biotech companies jointly funded with Avalon Ventures, a US investment firm.
The bottom line
Overall, Glaxo looks to be a classic contrarian buy after recent declines.
The companys dividend appears to be safe for the next three years, and while earnings are set to contract this year, steady growth is predicted through to the end of the decade.
For long-term investors who are prepared to wait, and take home an attractive 5.9% dividend yield, Glaxo could be a great buy.
If you’re not convinced about Glaxo’s long-term prospects, then The Motley Fool’s top analysts have recentlyidentified a biotechwhose near-term potential upside, they reckon, could be as high as 45%!
All is revealed inour new free reportentitled“Is This Stock Tomorrow’s Big Winner?“The company in question has a substantial cash balance, provenadvantageand is supported by some of the industry’s biggest players!
If you’d like to find out more, download thefree report today— but hurry, it’s onlyavailable for a limited time.
Rupert Hargreaves owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.