Pfizer Stock Analysis Complied by Kampamba Shula

New York-based Pfizer, Inc. is the world’s largest pharmaceutical company in terms of sales. The company has several blockbuster drugs and clearly distanced itself from the rest of its peer group in terms of financial power. In October 2009, Pfizer acquired Wyeth for about 68 billion. Wyeth has some valuable assets, including therapeutic categories complementary to Pfizer, a biologics portfolio, and a vaccine business. In February 2011, Pfizer acquired King Pharmaceuticals for $3.6 billion. With this acquisition, Pfizer is looking to strengthen its pain management franchise. The company’s website is www.pfizer.com

Pfizer Inc. is a research-based, global pharmaceutical company that discovers, develops, manufactures, and markets medicines for humans and animals. The Company's products include prescription pharmaceuticals, non-prescription self-medications, and animal health products such as anti-infective medicines and vaccines.

Since Ian Read became CEO over a year ago, there has been an intense focus on taking actions that will create shareholder value through increasing productivity of the innovative core and ensuring proper capital allocation that aligns with shareholder interests. The result has been a flurry of activity both in terms of product launches and approvals. Pfizer has taken steps to maximize the value of its inline portfolio, including key assets like Lyrica, Enbrel, Prevnar and Celebrex and advanced the regulatory filing for Eliquis, tofacitinib and the next wave of compounds in the pipeline.

Lipitor

Lipitor (atorvastatin) belongs to a group of drugs called HMG CoA reductase inhibitors, or "statins." Lipitor reduces levels of "bad" cholesterol (low-density lipoprotein, or LDL) and triglycerides in the blood, while increasing levels of "good" cholesterol (high-density lipoprotein, or HDL).

Lipitor is used to treat high cholesterol, and to lower the risk of stroke, heart attack, or other heart complications in people with type 2 diabetes, coronary heart disease, or other risk factors.
Pfizer owned the patent for Lipitor which expired in November 2011 and became generic. Lipitor is the bestselling pharmaceutical drug of all time.

Wall Street Analysis

Wall Street analysts look extremely bullish on Pfizer Inc. Their consensus for 2013 implies a forward P/E multiple of 11, down from the 19 figure that arises from comparing the stock’s valuation to trailing earnings. Pfizer is also an attractive defensive stock: its beta is 0.7, meaning that despite its large size it tends to fluctuate less than the broader market does in response to economic conditions, and it pays a dividend yield of 3.4%.

Pfizer can be compared to Merck & Co., Inc. (NYSE:MRK), Novartis AG (NYSE:NVS), Sanofi SA (NYSE:SNY), and Bristol Myers Squibb Co. (NYSE:BMY). Merck and Novartis have similar spreads between their trailing and forward P/Es; respectively, they trade at 21 and 18 times trailing earnings and 11 and 12 times their expected earnings for 2013. All three of those companies- including Pfizer- have similar valuation multiples. Merck and Novartis have slightly higher dividend yields, with Novartis’s being the highest at 4%, though that it is not a particularly big gap either.
Pfizer’s biggest strength is the company’s balance sheet. Pfizer has managed to beef up its already strong balance sheet over the past few quarters. The company has increased its cash position from $17 billion dollars to$23.2 billion dollars in cash. Free cash flow came in at just over $10 billion dollars for the in 2010. Margins are below the industry average at 17% and 9%. Return on equity is low at 8.2%.
Pfizer has become an attractive stock to income investors because of it steady stable revenue stream and solid dividend yield. Pfizer is a good dividend play with its 80 cent payout and 4.4% yield. The current payout rate is 37% of earnings and the stock’s yield is slightly lower than its 4.6% historical yield. The company should be able to steadily grow its dividend over the next few years as earnings slowly increase and the dividend payout ratio increases.

These are the major issues to consider when assessing this stock, according to analysts:

Key Positive Arguments	Key Negative Arguments
The company has several blockbuster products in its portfolio.	Pfizer lacks a drug that would add to its top-line now that Lipitor has lost exclusivity.
The acquisition of Wyeth and agreement with GlaxoSmithKline for HIV treatment development will provide Pfizer with long-term benefits.	Many of the key drugs that heightened Pfizer’s stature are experiencing stiff direct competition. Pfizer is a major financial and pharmaceutical company, but its ability to withstand threats to its core franchise remains uncertain.
The company’s decision to cut its R&D spend and streamline pipeline activities is being viewed as a major positive by the firms in the Digest group.	Pfizer’s pipeline needs to deliver. Major high-profile development setbacks include torcetrapib for high cholesterol, tanezumab for pain (phase III), dalbavancin (Zeven), an antibiotic for the treatment of skin infections, inhaled insulin drug Exubera, Sutent (liver cancer) and melanoma candidate tremelimumab.

Economeka & Ratios

Pfizer offers a decent combination of a reasonable valuation and income for investors. Again, sales growth will be lacking for the foreseeable future, but Pfizer is still very profitable and has ample cushion to adjust its cost structure to maintain a respectable level of profit gains going forward.

Price Earnings Ratios

 

Current P/E Ratio	14.0
P/E Ratio 1 Month Ago	13.7
P/E Ratio 26 Weeks Ago	17.6
P/E Ratio 52 Weeks Ago	16.6
5-Year High P/E Ratio	20.2
5-Year Avg. High P/E Ratio	17.2
5-Year Low P/E Ratio	9.4
5-Year Avg. Low P/E Ratio	11.7
5-Year Avg. P/E Ratio	15.3
Current P/E as % of 5-Year Avg. P/E	91%
P/E as % of 2 Digit MG Group P/E	62%
P/E as % of 3 Digit MG Group P/E	80%
12 Month Normalized P/E Ratio	18.4

 With a price to book value of 2.5, Pfizer is not unreasonably overvalued by the market which shows its valuation is still within reasonable limits. With a Price to Equity ratio of about 13 which is below 20 the general consensus limit for robust growth prospects.

Latest 12 Months Data Items

 

Latest Full Context Quarter Ending Date	2012/09
Gross Profit Margin	84.4%
EBIT Margin	22.5%
EBITDA Margin	42.4%
Pre-Tax Profit Margin	20.1%
Interest Coverage	9.4
Current Ratio	2.0
Quick Ratio	1.5
Leverage Ratio	2.2
Receivables Turnover	2.6
Inventory Turnover	1.2
Asset Turnover	0.3
Revenue to Assets	0.3
ROE from Total Operations	11.9%
Return on Invested Capital	8.6%
Return on Assets	5.3%

 

The Gross Profit margin alone will indicate something is tremendously good about Pfizer. At 84% gross profit and return on invested capital at 8.6% the robust balance sheet of Pfizer is a site for sore eyes for any investor.

The ratios also indicate that Pfizer manages its working capital efficiently as well as its long term and short term debt.

Pfizer remains a strong Buy for 2013 and beyond according to analysis from Economeka.