GLAXOSMITHKLINE PLC

February 5, 2015
NYSE: GSK
GLAXOSMITHKLINE PLC
BUY
A+
A
A-
HOLD
B+
B
Annual Dividend Rate
$2.65
B-
C+
C
Annual Dividend Yield
5.89%
SELL
C-
D+
Beta
0.60
Sector: Health Care
GSK BUSINESS DESCRIPTION
GlaxoSmithKline plc creates, discovers, develops,
manufactures, and markets pharmaceutical
products, such as vaccines, over-the-counter
medicines, and health-related consumer products
worldwide.
D
D-
E+
E
E-
F
Market Capitalization
$220.9 Billion
Sub-Industry: Pharmaceuticals
Weekly Price: (US$)
SMA (50)
HOLD
52-Week Range
$41.25-$56.73
RATING SINCE
02/05/2015
Price as of 2/4/2015
$44.95
Source: S&P
SMA (100)
1 Year
2 Years
56
54
52
50
STOCK PERFORMANCE (%)
3 Mo.
Price Change
-1.34
1 Yr.
-11.69
3 Yr (Ann)
0.07
Last Qtr
-43.69
-64.29
-63.75
12 Mo.
-24.13
-52.35
-51.91
3 Yr CAGR
-6.79
-19.32
-18.00
RETURN ON EQUITY (%)
GSK
Q4 2014
64.64
Q4 2013
77.69
Q4 2012
77.43
Ind Avg
10.74
20.21
20.27
S&P 500
14.59
13.97
13.23
48
46
GROWTH (%)
Revenues
Net Income
EPS
44
42
Rating History
BUY
Volume in Millions
40
20
2013
2014
2015
0
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
P/E COMPARISON
RECOMMENDATION
We rate GLAXOSMITHKLINE PLC (GSK) a HOLD. The primary factors that have impacted our rating are mixed
- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either
a positive or negative performance for this stock relative to most other stocks. The company's strengths can
be seen in multiple areas, such as its expanding profit margins and notable return on equity. However, as a
counter to these strengths, we also find weaknesses including deteriorating net income, generally higher
debt management risk and weak operating cash flow.
25.40
34.48
19.27
GSK
Ind Avg
S&P 500
HIGHLIGHTS
The gross profit margin for GLAXOSMITHKLINE PLC is rather high; currently it is at 66.89%. Regardless of
GSK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed
results of the gross profit margin, GSK's net profit margin of 18.43% compares favorably to the industry
average.
2012
2013
Q4 0.62
Q2 0.48
GSK, with its decline in revenue, underperformed when compared the industry average of 15.2%. Since the
same quarter one year prior, revenues fell by 43.7%. Weakness in the company's revenue seems to have hurt
the bottom line, decreasing earnings per share.
Q3 0.21
Q1 0.46
Q4 1.71
Q3 0.71
Q2 0.65
Q1 0.61
Q4 0.57
Q3 0.77
Q2 0.75
Q1 0.83
EPS ANALYSIS¹ ($)
Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This
is a signal of major weakness within the corporation. Compared to other companies in the Pharmaceuticals
industry and the overall market, GLAXOSMITHKLINE PLC's return on equity significantly exceeds that of both
the industry average and the S&P 500.
2014
NA = not available NM = not meaningful
1 Compustat fiscal year convention is used for all fundamental
data items.
The company, on the basis of change in net income from the same quarter one year ago, has significantly
underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income
has significantly decreased by 64.3% when compared to the same quarter one year ago, falling from $4,196.37
million to $1,498.59 million.
The debt-to-equity ratio is very high at 4.41 and currently higher than the industry average, implying increased
risk associated with the management of debt levels within the company.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2015. All rights reserved.
Report Date: February 5, 2015
PAGE 1
February 5, 2015
NYSE: GSK
GLAXOSMITHKLINE PLC
Sector: Health Care Pharmaceuticals Source: S&P
Annual Dividend Rate
$2.65
Annual Dividend Yield
5.89%
PEER GROUP ANALYSIS
Beta
0.60
Market Capitalization
$220.9 Billion
52-Week Range
$41.25-$56.73
Price as of 2/4/2015
$44.95
INDUSTRY ANALYSIS
US pharmaceutical companies are involved in the discovery, manufacturing, distribution, and research of
generic and branded drugs. The industry accounts for 27.3% of the healthcare sector and is capital-intensive
with exorbitant R&D costs. Most companies are mature and characterized by high margins and higher
dividend pay-outs. Major players include Pfizer (PFE), Bristol-Myers Squibb (BMY), Abbott Laboratories (ABT),
and Eli Lilly (LLY). The industry employs more than 400,000 in the US. The 50 largest companies control over
80% of the market.
60%
REVENUE GROWTH AND EBITDA MARGIN*
ACT
V
FA
AB
OR
AZN
R
VO
FA
LE
AB
-30%
UN
Revenue Growth (TTM)
LE
The industry faces unprecedented challenges from stringent environmental regulations and patent
expirations on billion-dollar products. Industry experts believe that generic competition will wipe out more
than $60 billion from US industry sales over the next five years as more than three dozen drugs lose patent
protection. Merck lost a $3 billion patent protection for its osteoporosis drug Fosamax in 2008 while Eli Lilly
lost an estimated 90% of Zyprexa sales. The FDA is rejecting more drugs on safety concerns and a lack of
compelling evidence of definite advancement from existing drugs.
27.5%
31.5%
EBITDA Margin (TTM)
Companies with higher EBITDA margins and
revenue growth rates are outperforming companies
with lower EBITDA margins and revenue growth
rates. Companies for this scatter plot have a market
capitalization between $70.9 Billion and $283.7
Billion. Companies with NA or NM values do not
appear.
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization.
Horizontal and vertical integration has created health maintenance organizations (HMOs) and pharmacy
benefit management firms (PBMs). In order to cut costs and remain competitive, the US pharma majors have
been outsourcing research to low-cost service providers in India and China.
The promising era of personalized medicine has begun. Dozens of exciting new drugs for the treatment of dire
diseases such as cancer, AIDS, Parkinson's, and Alzheimer's are either on the market or are very close to
regulatory approval. The industry has shifted its focus from blockbuster drugs (chemistry-based drugs) to
specialized products, geared towards specific disorders. According to government estimates, American drug
purchases may reach $497 billion by 2016, supported by a rapidly aging population, inflation, and the
introduction of expensive new drugs.
60%
REVENUE GROWTH AND EARNINGS YIELD
The industry depends on federal subsidies for cost reductions. The US government enacted the Medicare
Prescription Drug, Improvement, and Modernization Act (MMA) in 2003 to provide prescription drug benefits
to the elderly and disabled. Medicare Part D, a component of MMA, which came into effect in 2006, altered
the revenue model of pharma companies. Revenue from such programs is expected to reach $724 billion by
2015 as federal subsidies will lower co-payments and deductibles for specialty drugs.
ACT
V
FA
PEER GROUP: Pharmaceuticals
AB
OR
R
VO
FA
LE
AB
-30%
UN
Revenue Growth (TTM)
LE
AZN
-2%
ABBV
JNJ
NVS
SNY MRK
NVO PFE
LLY
GSK
7%
Earnings Yield (TTM)
Companies that exhibit both a high earnings yield
and high revenue growth are generally more
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter
plot have revenue growth rates between -24.1% and
54.1%. Companies with NA or NM values do not
appear.
Ticker
GSK
NVO
ABBV
AZN
LLY
ACT
JNJ
NVS
PFE
MRK
SNY
Company Name
GLAXOSMITHKLINE PLC
NOVO NORDISK A/S
ABBVIE INC
ASTRAZENECA PLC
LILLY (ELI) & CO
ACTAVIS PLC
JOHNSON & JOHNSON
NOVARTIS AG
PFIZER INC
MERCK & CO
SANOFI
Recent
Price ($)
44.95
43.22
56.91
71.06
70.22
266.23
101.36
98.15
32.07
59.05
47.00
Market
Cap ($M)
220,899
91,305
90,673
89,764
78,185
70,855
283,718
265,613
202,062
168,344
124,736
Price/
Earnings
25.40
26.35
52.21
87.73
31.49
NM
17.78
22.72
22.58
14.40
23.50
Net Sales
TTM ($M)
35,231.21
14,432.02
19,960.00
27,157.00
19,615.60
11,784.70
74,331.00
52,419.00
49,605.00
42,237.00
43,871.29
Net Income
TTM ($M)
4,293.30
4,303.48
1,774.00
1,030.00
2,390.50
-1,046.00
16,323.00
10,210.00
9,136.00
11,920.00
5,372.79
The peer group comparison is based on Major Pharmaceuticals companies of comparable size.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2015. All rights reserved.
Report Date: February 5, 2015
PAGE 2
February 5, 2015
NYSE: GSK
GLAXOSMITHKLINE PLC
Sector: Health Care Pharmaceuticals Source: S&P
Annual Dividend Rate
$2.65
Annual Dividend Yield
5.89%
COMPANY DESCRIPTION
GlaxoSmithKline plc creates, discovers, develops,
manufactures, and markets pharmaceutical products,
such as vaccines, over-the-counter medicines, and
health-related consumer products worldwide. The
company provides pharmaceutical products in various
therapeutic areas, such as respiratory, anti-virals, central
nervous system, cardiovascular and urogenital,
metabolic, antibacterials, oncology and emesis,
dermatology, rare diseases, immuno-inflammation,
vaccines, and HIV. It also offers consumer health
products in total wellness, oral care, nutritional, and skin
health areas. The company's total wellness products
comprise Panadol for the treatment of headache and
joint pain, fever, and cold symptoms; NicoDerm, NiQuitin
CQ, and Nicabate for the treatment of nicotine
withdrawal as an aid to quitting smoking; and ENO
Tums, a rapid relief antacid. Its oral care products
include Sensodyne for the prevention of dental
sensitivity; Polident, Poligrip, and Corega to enhance
comfort of fitted dentures and to clean dentures;
Aquafresh for the prevention of caries, gum disease, and
bad breath; and Parodontax to help stop bleeding gums
and gum health. The company's nutrition products
comprise Horlicks and Maxinutrition for nutrition; and
skin health products include Physiogel, a face and body
care product for dry, sensitive, and irritated skin, and
Oilatum, a soothing treatment for eczema and dry skin
conditions. In addition, it provides prescription
medicines; and paediatric and adult vaccines against
various infectious diseases. The company has a strategic
cancer immunotherapy collaboration with Adaptimmune
Limited to develop and commercialize NY-ESO-1 clinical
cancer program. GlaxoSmithKline plc was founded in
1935 and is headquartered in Brentford, the United
Kingdom.
GLAXOSMITHKLINE PLC
980 Great West Road
Brentford TW89GS
GBR
Phone: 44 20 8047 500
http://www.gsk.com
Employees: 99000
Beta
0.60
Market Capitalization
$220.9 Billion
52-Week Range
$41.25-$56.73
Price as of 2/4/2015
$44.95
STOCK-AT-A-GLANCE
Below is a summary of the major fundamental and technical factors we consider when determining our
overall recommendation of GSK shares. It is provided in order to give you a deeper understanding of our
rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
valuation. Please refer to our Valuation section on page 5 for further information.
FACTOR
SCORE
1.0
Growth
out of 5 stars
weak
Measures the growth of both the company's income statement and
cash flow. On this factor, GSK has a growth score better than 10% of the
stocks we rate.
strong
2.0
Total Return
out of 5 stars
weak
Measures the historical price movement of the stock. The stock
performance of this company has beaten 30% of the companies we
cover.
strong
5.0
Efficiency
out of 5 stars
weak
Measures the strength and historic growth of a company's return on
invested capital. The company has generated more income per dollar of
capital than 90% of the companies we review.
strong
1.5
Price volatility
out of 5 stars
weak
Measures the volatility of the company's stock price historically. The
stock is less volatile than 20% of the stocks we monitor.
strong
2.0
Solvency
out of 5 stars
weak
Measures the solvency of the company based on several ratios. The
company is more solvent than 30% of the companies we analyze.
strong
5.0
Income
out of 5 stars
weak
Measures dividend yield and payouts to shareholders. The company's
dividend is higher than 90% of the companies we track.
strong
THESTREET RATINGS RESEARCH METHODOLOGY
TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both
price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
perform against a general benchmark of the equities market and interest rates. While our model is
quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
expected equities market returns, future interest rates, implied industry outlook and forecasted company
earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2015. All rights reserved.
Report Date: February 5, 2015
PAGE 3
February 5, 2015
NYSE: GSK
GLAXOSMITHKLINE PLC
Sector: Health Care Pharmaceuticals Source: S&P
Annual Dividend Rate
$2.65
Annual Dividend Yield
5.89%
Consensus EPS Estimates² ($)
IBES consensus estimates are provided by Thomson Financial
Beta
0.60
Market Capitalization
$220.9 Billion
52-Week Range
$41.25-$56.73
Price as of 2/4/2015
$44.95
FINANCIAL ANALYSIS
GLAXOSMITHKLINE PLC's gross profit margin for the fourth quarter of its fiscal year 2014 is essentially
unchanged when compared to the same period a year ago. Sales and net income fell significantly; although
net income growth outperformed the average competitor in its industry, revenue growth did not.
At the same time, stockholders' equity ("net worth") has significantly decreased by 42.73% from the same
quarter last year.
20.00
95.86 E
96.49
NA
2015(E)
NA
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
INCOME STATEMENT
Net Sales ($mil)
EBITDA ($mil)
EBIT ($mil)
Net Income ($mil)
Q4 FY14
8,127.59
NA
1,563.66
1,498.59
Q4 FY13
14,433.28
NA
4,530.45
4,196.37
Q4 FY14
6,865.22
63,326.13
29,261.72
6,640.90
Q4 FY13
9,281.44
69,753.34
30,239.26
11,596.83
Q4 FY14
66.89%
NA
19.24%
0.56
6.77%
64.64%
Q4 FY13
70.12%
NA
31.39%
0.67
12.91%
77.69%
Q4 FY14
1.10
0.82
NA
NA
Q4 FY13
1.11
0.72
NA
NA
Q4 FY14
2,406
0.61
0.62
2.76
NA
3,908,850
Q4 FY13
2,396
0.62
1.71
4.84
NA
4,965,055
BALANCE SHEET
Cash & Equiv. ($mil)
Total Assets ($mil)
Total Debt ($mil)
Equity ($mil)
PROFITABILITY
Gross Profit Margin
EBITDA Margin
Operating Margin
Sales Turnover
Return on Assets
Return on Equity
DEBT
Current Ratio
Debt/Capital
Interest Expense
Interest Coverage
SHARE DATA
Shares outstanding (mil)
Div / share
EPS
Book value / share
Institutional Own %
Avg Daily Volume
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2015. All rights reserved.
Report Date: February 5, 2015
PAGE 4
February 5, 2015
NYSE: GSK
GLAXOSMITHKLINE PLC
Sector: Health Care Pharmaceuticals Source: S&P
Annual Dividend Rate
$2.65
Annual Dividend Yield
5.89%
RATINGS HISTORY
Our rating for GLAXOSMITHKLINE PLC was
downgraded from Buy to Hold today. As of 2/4/2015,
the stock was trading at a price of $44.95 which is
20.8% below its 52-week high of $56.73 and 9.0%
above its 52-week low of $41.25.
HOLD: $44.95
BUY: $45.68
2 Year Chart
Market Capitalization
$220.9 Billion
Price/Earnings
1
2
3
premium
$55
$50
52-Week Range
$41.25-$56.73
4
5
GSK 25.40
Peers 34.48
• Discount. A lower P/E ratio than its peers can
signify a less expensive stock or lower growth
expectations.
• GSK is trading at a significant discount to its peers.
Price/Projected Earnings
From
Buy
Buy
To
Hold
Buy
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS
(as of 2/4/2015)
47.33% Buy - We believe that this stock has the
opportunity to appreciate and produce a total return of
more than 10% over the next 12 months.
29.84% Hold - We do not believe this stock offers
conclusive evidence to warrant the purchase or sale of
shares at this time and that its likelihood of positive total
return is roughly in balance with the risk of loss.
22.83% Sell - We believe that this stock is likely to
decline by more than 10% over the next 12 months, with
the risk involved too great to compensate for any
possible returns.
Research Contact: 212-321-5381
Sales Contact: 866-321-8726
2
3
premium
Price reflects the closing price as of the date listed, if available
TheStreet Ratings
14 Wall Street, 15th Floor
New York, NY 10005
www.thestreet.com
1
4
5
1
2
3
premium
4
5
Price/Sales
1
2
premium
3
4
5
Price to Earnings/Growth
4
5
discount
1
2
3
premium
4
5
discount
GSK 0.01
Peers 0.96
• Discount. The PEG ratio is the stock’s P/E divided
by the consensus estimate of long-term earnings
growth. Faster growth can justify higher price
multiples.
• GSK trades at a significant discount to its peers.
Earnings Growth
1
2
3
4
lower
5
higher
GSK -51.91
Peers 15.65
• Lower. Elevated earnings growth rates can lead to
capital appreciation and justify higher
price-to-earnings ratios.
• However, GSK is expected to significantly trail its
peers on the basis of its earnings growth rate.
Sales Growth
discount
GSK 3.07
Peers 6.37
• Discount. In the absence of P/E and P/B multiples,
the price-to-sales ratio can display the value
investors are placing on each dollar of sales.
• GSK is trading at a significant discount to its
industry on this measurement.
3
GSK 13.41
Peers 22.99
• Discount. The P/CF ratio, a stock’s price divided by
the company's cash flow from operations, is useful
for comparing companies with different capital
requirements or financing structures.
• GSK is trading at a significant discount to its peers.
discount
GSK 16.28
Peers 8.45
• Premium. A higher price-to-book ratio makes a
stock less attractive to investors seeking stocks
with lower market values per dollar of equity on the
balance sheet.
• GSK is trading at a significant premium to its peers.
2
premium
discount
GSK 0.47
Peers 17.97
• Discount. A lower price-to-projected earnings ratio
than its peers can signify a less expensive stock or
lower future growth expectations.
• GSK is trading at a significant discount to its peers.
Price/Book
1
Price/CashFlow
discount
2014
MOST RECENT RATINGS CHANGES
Date
Price
Action
2/4/15
$44.95 Downgrade
2/1/13
$45.68 No Change
Price as of 2/4/2015
$44.95
VALUATION
HOLD. The current P/E ratio indicates a discount compared to an average of 34.48 for the Pharmaceuticals
industry and a premium compared to the S&P 500 average of 19.27. For additional comparison, its
price-to-book ratio of 16.28 indicates a significant premium versus the S&P 500 average of 2.72 and a
significant premium versus the industry average of 8.45. The price-to-sales ratio is well above the S&P 500
average, but well below the industry average. The valuation analysis reveals that, GLAXOSMITHKLINE PLC
seems to be trading at a discount to investment alternatives within the industry.
$60
$45
2013
Beta
0.60
1
2
3
lower
4
5
higher
GSK -24.13
Peers 7.73
• Lower. A sales growth rate that trails the industry
implies that a company is losing market share.
• GSK significantly trails its peers on the basis of
sales growth
DISCLAIMER:
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided
via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as
other third-party data providers.
TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided
for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or
other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a
qualified securities professional, before you make any investment. None of the information contained in this report constitutes,
or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a
determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of
the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the
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http://www.thestreet.com/static/about/terms-of-use.html.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2015. All rights reserved.
Report Date: February 5, 2015
PAGE 5