It really comes down to your personal investment goals are you looking for income or growth?
Glaxo is the income play of the two pharma giants. The companys shares currently support a dividend yield of 5.5%, and management has made a commitment to maintaining the payout at its present level until 2017.
Unfortunately, Glaxos management has also stated that the dividend payout wont grow over the next three years, which is disappointing. Still, theres scope for serious payout growth after 2017.
Room for growth
The next three years will be a transitional period for Glaxo. The company expects 2015 core earnings per shareto decline at a percentage rate in the high teens as sales of key drugs continue to fall.
However, new treatments will start to work their way through the companys treatment pipeline by 2016. These new products, combined with Glaxos drive to cut costs by 3bn per annum by 2017, will lead to slow and steady earnings growth.
Glaxos management believes thatgroups revenue will grow at a low-to-mid single digit percentage per annum from 2016 to 2020. During the same period,core earnings per share are expected to expand at a rate in the mid-to-high single digits.
City analysts believe that Glaxos earnings per share will fall by 11% this year before rebounding by 7% during 2016.
According to my figures, assuming a 7% per annum growth rate through to 2020, Glaxo is on track to earn 111p per share for full-year 2020. This indicates that Glaxo is trading at a 2020 P/E of 13.2.
Astra, on the other hand, is expecting to grow at a much faster rate thanGlaxoover the next five years.
Astra currently has72 new cancer treatments under development, 31 of which areimmuno-oncologydrugs. 13immuno-oncologydrug trials are under way, with a further 16 planned at the end of November last year.
And its this wave of new treatments that has given Astras management the confidence to state that revenues will hit $45bn by 2023.
According to my figures, which are based on Astras historic profit margins, on revenue of $45bn the company could report a net profit of $9bn, around 5.6bn. This translates into earnings per share of 4.43.
So, based on these figures, Astra is currently trading at a 2023 P/E of 10.
Astra is set to grow rapidly over the next decade, but the company also supports a dividend yield of 4% at present. The payout is covered 1.5 times by earnings per share and isnt expected to grow over the next few years.
Still, a yield of 4% is above the market average of 3.4%.
The bottom line
All in all,Id argue that the choice is simple. If youre looking for income, Glaxo is the better pick. However, if youre looking for a growth play, Astra could be the best choice.
That being said, Astra does support a dividend yield of 4%, which is above the market average and complements the companys long-term growth profile extremely well. If income investors are willing to accept a the reduced level of income, in exchange for growth potential, Astra could be the best bet.
But if neither Astra nor Glaxo appeals to you, then The Motley Fool’s top analysts have recentlyidentified a biotechwhose potential upside, they reckon, could be as great as 45%!
All is revealed inour new free reportentitled“Is This Stock Tomorrow’s Big Winner?”The company in question has a strong 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 only available for a limited time.