GlaxoSmithKline plc’s (LSE: GSK) share price is falling again today, which is great news, as at these prices the company is a steal.
Indeed, after recent declines Glaxo’s shares look extremely undervalued. The company currently trades at forward P/E of only 14.6, compared to the FTSE 350 pharma sector, which trades at a P/E of closer to 20. Glaxo’s shares also support a dividend yield of 5.7%.
What’s more, now the company has been found guilty of bribery within China and paid a fine of £300m, much of the uncertainty surrounding Glaxo’s future has been removed. That being said, although the Chinese authorities have finished with Glaxo, the company remains under investigation by regulators within both the U.S. and UK.
Still, it’s unlikely that regulators in either country would want to impose crippling fines on Glaxo. No government would want to claim responsibility for levying such hefty fines on Glaxo that the group is forced to cut jobs or scale back research and development.
And there’s no doubt that Glaxo is at the forefront of drug development. The company has more than 40 new treatments under development — a pipeline that has been called ‘best in class’ by many analysts. No regulators would want to put the development of these treatments at risk.
Not content with organic growth, Glaxo is signing deals with peers to boost its international presence. For example, Glaxo’s much touted deal with Novartis will boost its footprint in the global vaccines business and consumer healthcare market.
Additionally, Glaxo has just signed a deal with Aspen Pharmacare Holdings Ltd, whereby Glaxo will take a 25% stake in Aspen’s Japanese subsidiary, as part of management’s plan to boost commercial operations in Asia.
Like the Novartis deal, Glaxo’s deal with Aspen — Africa’s biggest generic drugmaker — will see Glaxo transfer the distribution rights of some products in Japan to Aspen’s Japanese unit, leaving the door open for further deals down the road and reducing the cost of the deal. Glaxo is already a significant Aspen shareholder so this deal is a natural fit for the two companies.
Along with the Aspen deal and Glaxo’s other growth initiatives, the company is currently working on a vaccine designed to prevent the deadly Ebola virus.
All in all, after taking into account Glaxo’s lowly valuation, the company’s healthy pipeline of new treatments under development, and management’s recent spate of deals designed to improve the company’s global exposure and growth, the company looks to be a great investment.
A solid pick
Glaxo’s defensive nature makes it the perfect long-term investment and that hefty 5.7% dividend yield cannot be ignored.
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