Is GlaxoSmithKline’s Growth Trend Changing?
Understanding GlaxoSmithKline's Valuation in 2016
GlaxoSmithKline’s 2015 revenues
GlaxoSmithKline (GSK) reported a 4% growth rate at 23.9 billion pounds, or about $33.3 billion, in its 2015 revenues. This included an operational growth of 6%, partially offset by the negative impact of foreign exchange. Furthermore, analysts estimate a growth rate of 4.8% in 2016 revenues and a rate of 3.3% for 2017.
Segment-wise performance
GSK’s business is divided into the following three business segments:
Pharmaceuticals
Vaccines
Consumer Health
The company’s Pharmaceuticals revenues have noticed a shift in the product performance, and the revenues have declined due to lower sales of key products Seretide and Advair, partially offset by increasing revenues from new products as well as HIV products Triumeq and Tivicay. Also, the divestment of oncology business to Novartis (NVS) will likely have a negative impact on both revenues and profitability in this segment for coming years.
During 2015, the pharmaceuticals revenues declined by ~8.5% at about 14.2 billion pounds, or around $19.8 billion, compared to revenues of 15.48 billion pounds, or $21.6 billion, for 2014.
Vaccines and Consumer Health segments
In the company’s Vaccines segment, the inorganic growth from the acquisition of meningitis vaccines and other vaccines like Novartis in March 2015 has increased exposure and revenues for GSK’s vaccine segment. The revenues for the vaccines segment have increased by ~14.6% to 3.66 billion pounds in 2015, as compared to 3.19 pounds in 2014. Although meningitis vaccines are adding to revenues, they have lower profit margins.
Consumer health revenues increased by 39% during 2015 to just over 6 billion pounds, or about $8.4 billion, compared to 4.3 billion pounds, or nearly $6 billion, for 2014. This increase was mainly due to the company’s wellness and skin health franchise.
In order to divest risk, investors can consider Vanguard FTSE All-world Ex-US ETF (VEU), which has 0.6% of its total investments in GlaxoSmithKline, or in the iShares US Healthcare (IYH), which has 10.9% of its investments in Johnson & Johnson (JNJ), 5.3% in Merck and Company (MRK), and 4.3% in Amgen (AMGN).
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