The share price performances of AstraZeneca (LSE: AZN) (NYSE: AZN.US) and GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) have been markedly different during the course of 2014. While the former has seen its share price rise by as much as 36%, the latter has rarely been in profit for its investors over the last year.
Looking ahead, though, will 2015 prove to be more of the same and see AstraZeneca outperform GlaxoSmithKline? Or, will the tables be turned over the next year?
A key reason why AstraZeneca has performed so strongly in 2014 is positive news flow. For example, it has been the subject of repeated bids from US peer, Pfizer, and rumours concerning further bids for the company persist. This gives the share price something of a bid premium, with investor demand for the stock increasing due to the potential for a takeover of AstraZeneca. Clearly, if there is a bid over the next year, it is likely to have a very positive impact on the companys share price.
However, should a bid not be forthcoming, AstraZeneca could see its share price come under pressure, as investors price in life without a bid for the company. Even if this occurs, AstraZeneca could still deliver excellent share price gains in 2015, though. Thats because its drugs pipeline continues to gather momentum and the company still has considerable financial firepower with which to conduct additional M&A activity so as to improve its long term growth prospects even further.
While AstraZeneca has experienced positive news flow in 2014, the opposite has generally been true for GlaxoSmithKline. It has been embroiled in allegations of wrongdoing in regard to bribery in multiple countries, with the company being fined around 300 million by Chinese authorities.
Furthermore, US sales of a key blockbuster drug, Advair (which accounted for 9% of GlaxoSmithKlines revenue last year) have come under pressure from generic versions. While GlaxoSmithKline does have a great pipeline of new drugs, this short term pressure on sales has led to a decline in sentiment in its shares. However, a potential restructuring that could see its HIV unit ViiV Healthcare spun-off as a separate entity could improve the markets view of the stock in 2015.
With shares in AstraZeneca having risen strongly during 2014, they naturally now trade on a higher valuation than at the start of the year. A price to earnings (P/E) ratio of around 17, however, does not appear to be particularly high given the long term potential from AstraZenecas drugs pipeline.
Shares in GlaxoSmithKline, though, trade on a P/E ratio of around 16 and, as a result, they appear to offer better value for money than AstraZeneca. Certainly, investor sentiment towards AstraZeneca is more positive than towards GlaxoSmithKline at the present time but, with the potential for further bids for AstraZeneca being highly uncertain and GlaxoSmithKline having the potential to lift sentiment via a restructuring, 2015 could see GlaxoSmithKline beat AstraZeneca.
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Peter Stephens owns shares of AstraZeneca and 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.