Twelve months ago, analysts were forecasting a 9% earnings per share (EPS) rise to 122p this year for GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US), but now they think we’ll see a 17% fall to 93p instead.
And in the past six months, the 2105 EPS consensus has been cut back from 118p to 96p.
What went wrong?
A fine of £297m after being found guilty of bribing doctors and hospitals in China to use its products, along with suspended prison terms for former head of Chinese operations Mark Reilly and two other executives, didn’t help.
Nor did the Serious Fraud Office’s opening of an investigation, together with allegations of similar dodgy practices in Poland, Iraq, Jordan, Lebanon and Syria. What will come of it remains to be seen — but investors will surely be recalling the $3bn the company was fined for its illegal drug-promotion methods in the USA in 2012, including sending psychiatrists on weekend jollies to Hawaii.
Fundamentals slipping
The company’s quarterly figures this year have been falling short of expectations too, and at the first-half stage Glaxo reported a 12% fall in core EPS at constant exchange rates, with the statutory reported figure down 14% — at real exchange rates, the drops were 22% and 34% respectively.
By Q3 time things were looking a little better with only a 2% drop in core EPS, although the reported figure was down 28%, again at constant exchange rates. At actual exchange rates, core and reported earnings were down 14% and 42% respectively.
Glaxo has kept its dividend payments growing, with rises of 6% in each of the first two quarters. But the Q3 payment was held flat at 19p per share with the company telling us to expect 80p for the full year — 12 months ago we had expectations of around 82p. As a consequence, the consensus dividend forecast for 2015 has been pared from 85p to 81p in the past six months.
These weaker-than-expected results have been put down in part to unexpected declines in sales of some drugs, especially in the US respiratory market, which took the shine of sales growth in emerging markets and Japan — and the company has reduced its expenditure on R&D as a result.
Shares too cheap?
But that’s just one year in an industry which has much longer drug cycles. So with the share price down 13% over the past 12 months to 1,412p, is it a good time to buy GlaxoSmithKline now?
The shares are on a P/E of 15.4 for this year, and even though the dividend will only be around 80p it should still yield 5.7%. That’s looking decent value to me, and big pharmaceuticals firms like Glaxo can be well worth buying on the dips.