GlaxoSmithKline plc (ADR) (GSK): Why Investors Should Consider It

The revenue contribution through the top line is expected to stay consistently in the range of $17 billion to $19 billion for the next few years. Prevnar Franchise, which offers vaccines for infants holds the second highest revenue share for Pfizer. Presently, Prevnar 7 is approved for infants, however, if Prevnar 13 obtains approval for treating adults, it can then spur a huge growth in overall revenues.

Similarly, GlaxoSmithKline also competes with Procter & Gamble. The Procter & Gamble Company (NYSE:PG) generates highest percentage of its revenues through Home& Pet Care at around 32%, followed by beauty products at 24%. The healthcare division also makes a small contribution of 15% to the overall revenues.

The EBITDA margin for the company declined from 23% during 2011 to 20% in 2012. The healthcare division reported total revenues of $2.5 billion with the EBITDA margin hovering close 20.3% during the same period.

The healthcare division includes three subdivisions; Oral Care, Feminine Care and OTC Drugs. During last two fiscal years, the company has managed to sustain a stable market share of 10% in the global healthcare market primarily due to robust growth of volumes in the emerging economies. Going forward, I expect its market share to grow gradually on the bases of increased traction from the emerging markets.

According to the valuation offered by Trefis, the healthcare division of The Procter & Gamble Company (NYSE:PG)’ accounts for 16% of its stock price. Going forward, sustained increase in the healthcare market share will bolster its bottom line.

Take away

The expected growth in core earnings is predominantly on the grounds of controlled and balanced cost structure, restructuring of operations and a diversified product portfolio. Nonetheless, challenges faced by the company in the form of EU pricing pressure and generic competition could possibly hinder its growth.

I believe with the purposeful intent of expanding into the emerging economies coupled with the cost cutting initiative, will enable investors a higher than expected yield on GlaxoSmithKline plc (ADR) (NYSE:GSK)’s stock in the long run.

The article Cost Cutting Initiative to Bolster GlaxoSmithKline’s Earnings originally appeared on Fool.com and is written by Kiran Gulati.

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