With its share price up 318p (24%) to 1,653p so far this year, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is comfortably ahead of the FTSE 100’s year-to-date rise of 15%.
And although such a margin is still at risk with nearly two months to go, I’m going to stick my neck out and tag Glaxo as one of the year’s winners — and not just because I have it in the Fool’s Beginners’ Portfolio!
Dividends, too!
Of course, in addition to that nice price gain, Glaxo is also set to provide a dividend yield of 4.7% for the year, and that’s ahead of the FTSE, too — the average yield for the UK’s top index is about 3%.
It hasn’t all been plain sailing for the pharmaceuticals giant, mind, and over the past five years its share price has actually lagged the FTSE even with dividends included. But that’s been down to a very well-known cause — that bad old patent cliff, as protection for a number of the firm’s key drugs has been coming to an end and competition has been opening up to more and more much-cheaper generic alternatives.
The challenge
But GlaxoSmithKline has been meeting the challenge well — better than rival AstraZeneca, in fact — and told us in its third-quarter update on 23 October that “2013 is a key year for R&D delivery“.
The company highlighted six candidates at the start of the year and of those, four have now been approved. And in addition, new quadrivalent flu vaccine FluLaval has been given the nod.
A number of the firm’s important new cancer treatments have been launched in the US and Europe, and Q3 saw the launch of Glaxo’s new Tivicay HIV treatment.
And test data has been received so far from five of the 14 candidates in Phase III trials identified at the start of the year, with three of those good enough for further progress.
All that is the kind of stuff that needs the serious R&D financial muscle that only the giants in the industry can wield. And even when it’s a small startup that makes an initial breakthrough, it often takes someone like GlaxoSmithKline to buy them out and take it forward — like the firm’s acquisition of Human Genome Sciences in the third-quarter of 2012.
Fundamentals improving
Total earnings per share (EPS) for the first nine months of the year fell 16% at constant exchange rates, to 61.4p. But core EPS gained 5% to 82.1p over the same period, and as Glaxo continues to focus on higher-value products (it sold off its Lucozade and Ribena brands this year, as well as offloading its thrombosis drugs) we should see the bottom line improving.
And throughout the past few years when “big pharma” was supposedly suffering at the hands of cheaper competition, GlaxoSmithKline has kept its dividends growing and has yielded between 4.5% and 5.5%. For this year, there’s 4.7% on the cards, with 5% penciled in for 2014.
To me, that’s a winner!