What Are the City's Expectations for GlaxoSmithKline's Profits?
May 21st 2013 11:09AM
Updated May 21st 2013 12:05PM
LONDON -- When weighing a potential investment, it's useful to look forward rather than backwards. If you buy a stake in a business, it's the future profits that count -- and the stock market will value your shares based on future expectations.
With that in mind, it can be helpful to review what expert City analysts are expecting a company to earn in the coming years. These expectations can be compared to the share price, to give you a better idea of how the stock market is valuing the business.
Today, I'm looking at the earnings per share forecasts for GlaxoSmithKline , the FTSE 100 pharmaceutical giant. All my figures are courtesy of S&P Capital IQ.
Analysts expect GSK to earn 97 pence per share in 2013. Compared to today's share price of 1,720 pence, the market is valuing Glaxo's shares on a forward price-to-earnings multiple of 18.
The estimates suggest earnings may rise to 97 pence per share for 2014 and then climb to 1.14 pounds per share in 2015, growing at an annualized rate of around 9% in the coming years.
The data from S&P Capital IQ also indicates GSK's revenues could climb 3% annually, from around 26 billion pounds in 2012 to 31 billion pounds by 2017.
These optimistic growth assumptions explain why GlaxoSmithKline is priced so generously by the market. But can the pharmaceutical giant live up to these lofty expectations?
Whether these projections and the current valuation make the shares of GlaxoSmithKline "fairly priced" is for you to decide.
However, if you're looking for an investment opportunity with a higher dividend yield, you may want to look at "The Motley Fool's Top Income Stock for 2013."
The Fool's choice recently revealed its dividend would increase "at least in line with the rate of U.K. inflation for the foreseeable future," and provides a market-beating 5% yield.
Just click here to download your free report!
The article What Are the City's Expectations for GlaxoSmithKline's Profits? originally appeared on Fool.com.Mark Rogers has no position in any stocks mentioned. The Motley Fool recommends GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.