The pharmaceuticals industry is recovering pretty well from the patent cliff problems when a number of key drugs lost their protection in recent years, and though theres increasing competition from generic drugs, our two big FTSE 100 players are rebuilding their pipelines strongly. The Citys tipsters seem a little tentative still, but they do seem to have a preference for AstraZeneca (LSE: AZN)(NYSE: AZN.US).
GlaxoSmithKline (LSE: GSK)(NYSE: GSK.US) didnt need quite the same drastic recovery strategy as AstraZeneca, and there are still a lot of analysts who dont seem to know what to make of it. Of a sample of 28, a full 16 are on a Neutral stance, with the rest split six apiece between the Buy and Sell camps.
Short-term price targets arent too encouraging either, with a recent average of around 1,475p and thats 6% below the current price of 1,565p! Theres still an EPS fall on the cards for this year with modest growth expected in 2016, and with a forward P/E of 17 and the mooted 5.2% dividend yield only covered 1.12 times by forecast earnings, I wouldnt be expecting much in the short term.
At AstraZeneca we have 33 pundits offering their thoughts, and theyre still a bit split between 11 Buys and nine Sells, but at least thats a bit more positive and theres a smaller proportion of them, at 13, sitting on the Neutral fence.
But its when we take a look at price targets that we see the difference. The recent average for AstraZeneca stands at 5,060p and thats a 13% premium on the current 4,473p price. So why the difference?
For one thing, though AstraZeneca shares are on a forward P/E of 16.3, which is above the FTSE long-term average, its a more modest rating that Glaxos and Astras predicted dividend yield of 4.1% might be a little lower, but it would be 1.5 times covered by earnings.
Weve also seen AstraZeneca forecasts improving over the past few months, with earnings for both 2015 and 2016 edging upwards. The accepted wisdom is that Astra wont return to earnings growth before 2017, but the company keeps beating expectations and confidence in chief executive Pascal Soriot is very high I wouldnt be at all surprised to see 2016 turn in a small rise instead of the forecast 2% drop.
AstraZeneca is definitely looking better value to me now, and thats even after its shares have put on 12% over the past 12 months while Glaxos have lost 7% and over five years were looking at a 49% gain from Astra against 28% for Glaxo.
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