It has been a terrible year forGlaxoSmithKline(LSE: GSK) (NYSE: GSK.US) and more bad news could be around the corner.Indeed, even after being found guilty of bribing medical officials within China and being fined 300m, the company is still facing an investigation by British and American authorities.
Still, the conclusion of the Chinese bribery case and subsequent fine has removed much speculation and uncertainty about the companys future. Some analysts had been worried that China would slap a huge fine on Glaxo, one so large that the companys dividend payout would come under pressure. However, a 300m fine is manageable for Glaxo, which reportedpre-tax profits of 6.6bn last year.
The best pick
With uncertainty removed, Glaxo has become a better pick thanAstraZeneca(LSE: AZN) (NYSE: AZN.US) as the company looks attractive on several key valuation metrics, as well as fundamental factors.
In particular, at present levels Astra trades at a forward P/E of 16.5 as the companys earnings per share are expected to fall by 14% this year. In addition, earnings are expected to fall a further 7% during 2015. Nevertheless, the market continues to speculate that US pharmaceutical giantPfizerwill make another attempt to acquire Astra, which explains Astras high valuation.
On the other hand, Glaxo trades at a forward P/E of 15, with earnings growth of 5% pencilled in for 2015. This puts the company on a 2015 P/E of 14.4. So, Glaxo is cheaper than its smaller peer, while Glaxos earnings are expected to grow faster over the next two years.
Then theres Glaxos dividend yield, whichis currently 5.4%, compared to Astras lowly 3.9%.
Bright future
Glaxo easily trumps Astra on valuation grounds but what about the companys prospects? Well, analysts have consistently praised the strength of Glaxos treatment pipeline over the past 12months, ranking it the best in the industry. The company has 40 new treatments under development in total. Then theres the companys joint venture with Swiss pharmaceutical giantNovartis, which will see the two groups create a world-leading consumer healthcare company.
Compared to Glaxo, Astras treatment pipeline is more specialist. However, the companys management believes that the group hasone of the most exciting pipelines in the industry, although Astrasfast-evolving pipeline is focused on a new area of cancer research known as immuno-oncology. Only time will tell if Astras focus on these new treatments will pay off.
The bottom line
All in all, it has been a tough year for Glaxo but now the company has settled with Chinese authorities, things are looking up. With uncertainty removed Glaxos low valuation makes it a better pick than Astra, which looks expensive based on the companys falling income. Moreover, analysts believe that Glaxos pipeline of treatments under development has plenty of potential.
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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.
