I remember the days when everybody wanted pharmaceutical giant GlaxoSmithKline (LSE: GSK) in their dividend portfolio. Now investors are more sceptical.
Glax on the tracks
The Glaxo share price has had a bumpy ride for the last six years, although it is up 13% year-to-date and jumped more than 1% after today’s results showed a rise in second-quarter sales and profits, with full-year earnings now set to drop less than expected.
FTSE 100 pharmaceutical rival AstraZeneca (LSE: AZN) has had a much better time of it lately, its share price up almost 45% in five years to hit record highs. It is up 5% this morning after a far more bullish set of results than Glaxo’s, with first-half product sales up 12% to $11.18bn, a rise of 17% at constant exchange rates.
Astra’s strong
AstraZeneca said sales growth accelerated in Q2, rising by 14% to $5.72bn (19% in constant currency). Better still, they grew in every region with all three therapy areas delivering an encouraging performance.
Highlights included 51% oncology sales growth and 34% sales growth in China to $1.17bn (a whopping 44% at constant exchange rates), while US sales rose 16% to $1.88bn, and even Europe returned to growth up 1% to $1.04bn.
Investors will have been excited by talk of “further positive pipeline developments, with the second half of the year anticipated to be an exceptionally busy period”.
Glaxo grows too
Glaxo’s results were good, although not as good. Q2 group turnover up 7% to £7.8bn, or 5% at constant exchange rates. Its Vaccines arm did particularly well, with turnover up 26% to £1.585bn at actual exchange rates, driven by meningitis vaccine Shingrix.
Consumer Healthcare turnover was up a healthy 5% to £1.9bn, although Glaxo’s key Pharmaceuticals division grew at a slower pace of 2%, to £4.3bn.
Total operating profit was £1.48bn in the quarter, up from £779m in 2018. However, once accounting for restructuring charges and write-downs, adjusted operating profit rose 3% to £2.17m at actual exchange rates.
AstraZeneca is now the bigger group by market cap, £87.93bn against £83.44bn.
But which to buy?
So the smart money says buy AstraZeneca?
I’m not so sure, and neither is my colleague Roland Head, who recently warned of the group’s surging debt, up from $7.8bn four years ago to $13bn in today’s report. Management is whittling it down, to be fair, as net debt stood at $15.34bn one year ago.
However, with the AstraZeneca share price trading at 22.7 times earnings, investors are pricing an awful lot of growth into the stock.
Glaxo is notably cheaper at 14.8 times forecast earnings. Operationally, it is in a better place than before. It offers a higher dividend income too, with a forecast yield 4.8% and cover of 1.4, against AstraZeneca’s 3.5% yield with cover of 1.2. Don’t expect too much progression from either, both have been holding their dividends for years while pumping money into replenishing their pipelines.
Momentum is on AstraZeneca’s side as it races ahead of Glaxo but high investor hopes mean it cannot afford any slippage.
If I had to buy one, it would be Glaxo, though. With luck, you might catch it at an earlier stage in its recovery cycle.