Financial Review: Patheon (PTHN) versus GlaxoSmithKline (GSK)

GlaxoSmithKline (NYSE: GSK) and Patheon (NYSE:PTHN) are both healthcare companies, but which is the superior business? We will contrast the two companies based on the strength of their valuation, analyst recommendations, risk, profitability, earnings, institutional ownership and dividends.

Institutional and Insider Ownership

9.5% of GlaxoSmithKline shares are held by institutional investors. Comparatively, 0.6% of Patheon shares are held by institutional investors. 10.0% of GlaxoSmithKline shares are held by company insiders. Comparatively, 0.1% of Patheon shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Analyst Ratings

This is a summary of current ratings and price targets for GlaxoSmithKline and Patheon, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
GlaxoSmithKline 1 8 5 0 2.29
Patheon 0 6 1 0 2.14

GlaxoSmithKline currently has a consensus target price of $38.33, suggesting a potential upside of 5.69%. Patheon has a consensus target price of $33.60, suggesting a potential upside of Infinity. Given Patheon’s higher possible upside, analysts clearly believe Patheon is more favorable than GlaxoSmithKline.

Dividends

GlaxoSmithKline pays an annual dividend of $2.04 per share and has a dividend yield of 5.6%. Patheon does not pay a dividend. GlaxoSmithKline pays out 237.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Profitability

This table compares GlaxoSmithKline and Patheon’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
GlaxoSmithKline 4.97% 130.63% 10.28%
Patheon N/A N/A N/A

Volatility and Risk

GlaxoSmithKline has a beta of 0.98, meaning that its share price is 2% less volatile than the S&P 500. Comparatively, Patheon has a beta of 1.62, meaning that its share price is 62% more volatile than the S&P 500.

Earnings and Valuation

This table compares GlaxoSmithKline and Patheon’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
GlaxoSmithKline $38.89 billion 2.31 $1.97 billion $0.86 42.17
Patheon $1.87 billion 0.00 $31.70 million $0.75 N/A

GlaxoSmithKline has higher revenue and earnings than Patheon. Patheon is trading at a lower price-to-earnings ratio than GlaxoSmithKline, indicating that it is currently the more affordable of the two stocks.

Summary

GlaxoSmithKline beats Patheon on 11 of the 15 factors compared between the two stocks.

GlaxoSmithKline Company Profile

GlaxoSmithKline plc is a global healthcare company. The Company operates through three segments: Pharmaceuticals, Vaccines and Consumer Healthcare. The Company focuses on its research across six areas: Respiratory diseases, human immunodeficiency virus (HIV)/infectious diseases, Vaccines, Immuno-inflammation, Oncology and Rare diseases. The Company makes a range of prescription medicines, vaccines and consumer healthcare products. The Pharmaceuticals business discovers, develops and commercializes medicines to treat a range of acute and chronic diseases. The Vaccines business provides vaccines for people of all ages from babies and adolescents to adults and older people. The Consumer Healthcare business develops and markets products in Wellness, Oral health, Nutrition and Skin health categories. Its product portfolio includes Adartrel, Bexsero, Daraprim and Quinvaxem. Its brands include Panadol, abreva, polident and physiogel.

Patheon Company Profile

Patheon N.V. is a provider of outsourced pharmaceutical development and manufacturing services. The Company’s segments include Drug Product Services (DPS), Pharmaceutical Development Services (PDS) and Drug Substance Services (DSS). The DPS segment is engaged in manufacturing and packaging for approved prescription, over-the-counter (OTC) and nutritional products. The PDS segment provides a range of formulation, production and technical services from the early stages of a product’s development to regulatory approval, as well as for new formulations of approved products for lifecycle extension. The DSS segment provides small molecule active pharmaceutical ingredient (API) and outsourced manufacturing solutions for large molecule biological API from early development through commercial scale production. It provides an integrated range of API and finished drug product services to its customers, from formulation development to clinical and commercial-scale manufacturing.

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