Why pharma giant GlaxoSmithKline is a ‘buy’ for income seeking investors

Otmane El Rhazi from Mindful Money » Shares.

Helal Miah, investment research analyst at The Share Centre, explains why pharmaceutical giant GlaxoSmithKline is a ‘buy’…

The defensive nature of the GlaxoSmithKline and the competitive yields paid to investors make this a core holding for many portfolios. As our preferred company in its sector, Glaxo offers investors new product lines, diversification across consumer healthcare and biotechnology, and increasing exposure to emerging markets.

Investors should note that Glaxo’s latest results in the form of first quarter sales were in-line with market expectations at £5.6bn. The management’s outlook for the short to medium term was upbeat, whilst the cost saving programme of £1bn is to be accelerated and completed by the end of 2017 vs. 2019.

While the business has suffered from generic competition in recent years, it expects significant recovery in 2016 and growth in core earnings over the next five years. The management continue to prioritise a stable and growing dividend pay-out, which will be supported by a return of capital to shareholders following a series of recent transactions with Novartis.

Prospective investors will appreciate that Glaxo’s shares trade at better valuations compared to the peer group and the group’s R&D pipeline gives us confidence for the medium to long term. We recommend GlaxoSmithKline as a ‘buy’ for income seeking investors who are willing to accept a lower level of risk.