Is It Still Safe To Buy GlaxoSmithKline plc?


I'm always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market could be overheating.

So right now I'm analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today's uncertain economy.

Today I'm looking at pharmaceutical giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) to determine whether the shares are still safe to buy at 1,630p.

So, how's business going?

Throughout last year, investors expressed concern over the future of GlaxoSmithKline as the company lost the exclusive manufacturing rights to some of its most popular over-the-counter treatments.

However, since last year the company has been working hard to reassure investors and bring new products to market. Indeed, it appears that the company does have a strong pipeline of treatments under development, with six key assets currently under regulatory review within the US and Europe.

In addition, the company is seeking acquisitions to boost its product portfolio. After its purchase of US biotechnology partner Human Genome Sciences last year, GlaxoSmithKline has decided to sell its nutritional drinks brands Lucozade and Ribena, to raise more cash for strategic acquisitions.

Furthermore, the firm's management are committed to reducing costs and the company is currently undertaking a 'new major change programme', which is targeting cost savings of $1 billion a year by 2016.

Expected growth

Since 2009, GlaxoSmithKline's earnings have fallen a compounded 6.3%. However, thanks to the company's aggressive cost cutting strategy, many City analysts expect the company to return to growth this year. City forecasts currently predict earnings of £1.16 per share for this year (3% growth) and £1.29 for 2014.

Shareholder returns

GlaxoSmithKline is well known for its shareholder returns and it would appear that the company does not intend to damage this reputation anytime soon.

The company currently offers investors a dividend yield of 4.6% -- larger than that of its peers in the pharmaceuticals & biotechnology sector, which currently offer an average dividend yield of 4.3%. Additionally, GlaxoSmithKline is aiming to return £1-2 billion to investors this year by way of a share buyback program.


Investors have been please with GlaxoSmithKline's performance so far this year and as a result the company is currently trading at a premium to its peers. GlaxoSmithKline currently trades at a historic P/E of 16.7, while its peers trade on an average historic P/E of around 16.2.

Foolish summary

So overall, based on the company's predicted growth rate, higher than average dividend yield and share buyback program, I believe that GlaxoSmithKline still looks safe to buy at 1,630p.

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In the meantime, please stay tuned for my next FTSE 100 verdict