GlaxoSmithKline PLC (GSK, Financial) is the world's second-largest pharmaceutical company. Formed in 2000 through the merger of British drugmakers GlaxoWellcome and SmithKline Beecham, the firm has managed to develop the next generation of treatments in the health care arena.
Catalysts
The company's portfolio has an extensive reach and its stellar product, Advair, represents one-fifth of total revenue and makes the firm a leader in the industry. Moreover, advances in respiratory drugs should improve Glaxo's pricing power and this also contributes to strengthen its leadership. Although an important part of revenues came from developed markets, the company is also betting strongly in emerging markets. North America is the primary market, followed closely by Europe and emerging markets.
Despite some negative effects such as patent expirations or limitations on prices, the industry's long-term catalysts are positive. Companies operate with good margins and taking into consideration the fact that population is increasing and getting older, I believe the fundamental outlook for the pharmaceuticals industry is positive for next years.
The company has a solid history of dividend payments for the last 56 years and currently pays a dividend of $2.31 per share, which gives the stock a yield of 5.7%. But Glaxo's dividend is under pressure, because the company uses most of its earnings to fund them. In theory, if the dividend payout ratio is too high, its dividend may not be sustainable in the long term. As of June, the dividend payout of the company is $6.24, which seems too high and opens up the risk of a dividend cut. So investors must be aware of the earnings generation.
Good opportunity?
Glaxo looks attractive when evaluating relative valuation metrics like the P/E ratio, which is close to 10-year low of 6.47. The stock has declined in the current year. Despite this, Ken Fisher (Trades, Portfolio) held 11.53 million shares of the pharma producer, up by 7.3% in the second quarter. The stock of GlaxoSmithKline has lost over 2% year to date and plummeted by more than 8% during the third quarter even though the stock was highly demanded among some other funds. Jim Simons (Trades, Portfolio) held a stake of 3.24 million shares valued at $135.2 million, up by 24.25% in Q2. Further, D.E. Shaw was tremendously bullish on the trimester; the fund upped the stake by 1124% to 1.96 million shares valued at $81.6 million.
Fund´s positions
Aside from Ken Fisher (Trades, Portfolio), billionaire investor Ken Griffin upped his stake by 2171% on the second quarter. These hedge fund managers believe that Glaxo is an interesting long-term investment opportunity. Further, the company has gained better ratings from analysts in the past days. Bank of America (BAC, Financial), BNP Paribas (TRYS, Financial)Â and JPMorgan Chase (JPM, Financial) have upgraded the stock.
Disclosure: As of this writing, Omar Venerio did not hold a position in any of the aforementioned stocks
