Better Buy: AbbVie Inc. vs. GlaxoSmithKline

By Keith Speights Markets Fool.com

They're both big, successful drugmakers, but AbbVie (NYSE: ABBV) and GlaxoSmithKline (NYSE: GSK) haven't competed directly against each other all that much in the past. That could potentially change in the future, however, with Glaxo's bid to enter the autoimmune disease market currently dominated by AbbVie.

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Regardless of what happens in the future with their potential product rivalries, which of these stocks is the better pick for investors now? Here's how AbbVie and GlaxoSmithKline compare.

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Growth

AbbVie easily comes out on top versus GlaxoSmithKline in both sales and earnings growth in recent years. The more important thing for investors, however, is how much each company will be able to grow earnings in the future.

A big question for AbbVie relates to potential challengers to its top-selling autoimmune disease drug, Humira. If it can fend off rivals like it hopes to do, sales for Humira will remain strong. That will allow AbbVie's blockbuster cancer drugs Imbruvica and Venclexta to help deliver additional growth.

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Its pipeline also includes several potential stars. AbbVie expects to file for regulatory approval of elagolix, which targets treatment of endometriosis and uterine fibroids, and experimental lung cancer drug Rova-T this year. Other likely winners should follow, including autoimmune disease candidates ABT-494 and risankizumab. Wall Street analysts project that the combination of AbbVie's current products and its pipeline should allow the biotech to grow earnings by nearly 15% annually over the next five years.

GlaxoSmithKline has seen sales fall for its top-selling product, respiratory drug Advair. However, the drugmaker received a lot of help from newer respiratory drugs to offset Advair's declines. GlaxoSmithKline's biggest success has been in HIV, with skyrocketing sales for Tivicay and Triumeq.

The company's pipeline looks especially strong in HIV, with seven late-stage programs. GlaxoSmithKline hopes to extend its leadership in the respiratory area with a couple of late-stage candidates, including experimental COPD drug mepolizumab. In addition, the big pharma company claims several late-stage rare-disease drugs.

GlaxoSmithKline also awaits regulatory approval for sirukumab, which would compete against AbbVie's Humira in the rheumatoid arthrititis market if approved. All of this is enough to convince Wall Street analysts that GlaxoSmithKline can grow its earnings by an average annual rate of nearly 14% over the next five years.

Valuation

AbbVie stock currently trades at 18 times trailing-12-month earnings and 10 times expected earnings. That makes the biotech stock's valuation appear quite attractive.

Looking in the rearview mirror, GlaxoSmithKline stock looks a lot more expensive with a trailing-12-month earnings multiple of nearly 93. However, the drugmaker's improving earnings picture gives it a forward earnings multiple of 15. That's much better, but AbbVie clearly wins on valuation.

Dividends

Both AbbVie and GlaxoSmithKline claim impressive dividend yields. GlaxoSmithKline's yield of 4.75% tops AbbVie's yield of 3.93%, which might make you think the nod in this category should go to the British drugmaker.

However, we also need to look at the ability to keep the dividends flowing. On that count, AbbVie performs much better. While GlaxoSmithKline didn't generate nearly enough profits in 2016 to fund its dividend, AbbVie used less than 63% of its earnings to pay dividends.

Also, GlaxoSmithKline's dividend has gone up and down and recent years. AbbVie, on the other hand, has steadily increased its dividend every year since the company's spinoff from Abbott Labs.

Better buy

I don't think this is a tough decision. GlaxoSmithKline is making a comeback with great new products that should provide solid growth for the future and claims a high dividend yield. However, in my view, AbbVie is the better choice.

AbbVie combines impressive growth, low valuation, and a tremendous dividend track record. Although the biotech faces some questions about biosimilar competition to Humira, AbbVie seems to be in reasonable position to fend off U.S. challengers for at least a few years.

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Keith Speights owns shares of AbbVie. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.