Three Drug Stocks Trading at Discounts

Shares of drug stocks Pfizer, Merck and GlaxoSmithKline are trading at discounts relative to peers and the overall market.
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BOSTON (TheStreet) -- Drug stocks can't seem to generate momentum. The Dow Jones U.S. Pharmaceuticals Index has fallen 1.1% this year, lagging behind major benchmarks. Here are three large-cap drug stocks trading at discounts.

3. GlaxoSmithKline

(GSK) - Get Report

is a U.K.-based drugmaker. Its shares pay a dividend yield of 5.9% with a safe payout ratio of 55%.

Quarter

: Fourth-quarter profit increased ninefold to $2.7 billion, or $1.06 a share, as revenue tripled. The operating margin expanded from 24% to 28%. GlaxoSmithKline has $11 billion of cash and $27 billion of debt, equal to a debt-to-equity ratio of 1.6.

Stock

: GlaxoSmithKline has advanced 28% during the past year, less than U.S. indices. It trades at a price-to-projected-earnings ratio of 10, a price-to-sales ratio of 2.1 and a price-to-cash-flow ratio of 7.9, 22%, 37% and 42% discounts to industry averages.

Consensus

: Of analysts covering GlaxoSmithKline, two advise purchasing its shares and five recommend holding them.

Bank of America

(BAC) - Get Report

expects the stock to gain 7.5% to $42.12.

Sanford Bernstein

predicts the shares will rise to $40.

>> Who Owns GlaxoSmithKline?: Tweedy Browne

2. Merck

(MRK) - Get Report

, based in New Jersey, sells drugs for people and animals. Its shares pay a dividend yield of 4.3% with a safe payout ratio of 28%.

Quarter

: Fourth-quarter net income quadrupled to $6.5 billion and earnings per share tripled to $2.35. Revenue increased 67%. The operating margin fell to 23%. Merck has $9.6 billion of cash and $18 billion of debt, equaling a debt-to-equity ratio of 0.3.

Stock

: Merck has gained 39% during the past year, slightly outpacing the

Dow Jones Industrial Average

. It sells for a price-to-projected-earnings ratio of 9.1 and a price-to-book ratio of 1.9, 29% and 60% discounts to peer averages.

Consensus

: Of researchers following Merck, 17, or 71%, rate its stock "buy" and seven rate it "hold."

Deutsche Bank

(DB) - Get Report

projects a share price of $48, a potential 34% return.

Credit Suisse

(CS) - Get Report

expects the shares to rise to $46.

>> Who Owns Merck?: Chris Davis

1. Pfizer

(PFE) - Get Report

is the world's largest drugmaker based on revenue. It completed its acquisition of

Wyeth

in October. Its shares offer a 4.3% dividend yield with a safe payout ratio of 52%.

Quarter

: Fourth-quarter profit tripled to $767 million, or 10 cents, as revenue increased 34%. The operating margin dropped from 37% to 21%. Pfizer has $26 billion of cash and $49 billion of debt, translating to a debt-to-equity ratio of 0.5.

Stock

: Pfizer has gained 18% during the past year, lagging behind benchmarks. It trades at a price-to-projected-earnings ratio of 7.3, a price-to-book ratio of 1.5 and a price-to-cash-flow ratio of 8.2, 43%, 68% and 40% discounts to peer averages.

Consensus

: Of firms rating Pfizer, 18, or 69%, advocate purchasing its shares, six advise holding and two suggest selling them.

Hilliard Lyons

predicts the shares will rise 80% to $30.

JPMorgan Chase

(JPM) - Get Report

expects them to touch $24.

>> Who Owns Pfizer?: John Paulson

-- Reported by Jake Lynch in Boston.