In an industry where many pharmaceutical companies find it difficult to detach the "one-drug" tag, Pfizer (PFE) has successfully defied the odds. With a series of mega-mergers over the years and a highly diversified product portfolio, Pfizer has become one of the largest pharmaceutical companies in the world.
For Q2 2013 Pfizer reported earnings that beat analyst expectations (actual: 56 cents per share vs. expected: 55 cents per share).Net income rose more than fourfold from a year earlier to $1.98 per share, helped by growth in emerging markets, spin off of the Company's animal health business into Zoetis (ZTS), and a $2.5 billion patent settlement with Teva Pharmaceutical Industries (TEVA) and Sun Pharmaceuticals Industries for patent-infringement damages.
The only black eye on Company financials were revenue numbers — sales fell by more than 7% as generic competition for cholesterol-lowering drug Lipitor, which lost patent protection in 2011, ate away at the drug's revenue. However, despite the drop in revenue, Pfizer has maintained its full-year EPS forecasts for 2013, expecting to earn in the range of $2.10 to $2.20 per share.
The sheer size of Pfizer's revenues enables the firm to invest considerably in R&D, which is critical when it comes to keeping its pipeline full. This year, Pfizer launched a new arthritis drug (Xeljanz) and a blood thinner (Eliquis), which could potentially help offset Lipitor's lost sales. The Company also awaits late-stage study results on a promising breast cancer drug (Palbociclib) and type II diabetes drug (Ertugliflozin).
One interesting announcement that pleased investors was the firm's decision to reorganize the business into innovative and value segments, which would result in efficient allocation of resources and fuel long-term growth for the Company. As part of the restructuring process effective January 2014, Pfizer will separate its commercial operations into three business segments:
- Therapeutic areas (Innovative business segment)
- Vaccines, Oncology and Consumer Healthcare (Innovative segment), and
- Generics (Value segment)
Market IQ's proprietary Fundamental metrics give Pfizer an Outperform rating. Market IQ places Pfizer in the right quadrant of the Quality/Value chart, indicating high Quality and investment Value.
Pfizer's fundamental stock Quality is better than 62% of its peers. While EPS growth, growth in Net Income, and Return on Equity add to Qualitative strengths, weakness in Revenue has been a drag on Quality.
- EPS improved by 19% in Q2 2013 when compared to Q2 2012. The company has demonstrated a pattern of positive earnings per share growth over the past two years, increasing its bottom line by earning $1.27 per share in 2012 vs. $1.17 in 2011. This year the market expects earnings of $2.17 per share — a significant increase compared to 2012.
- Net Income increased by 333.33% in Q2 2013 when compared to Q2 2012.
- ROE increased to 17.94% in 2012 vs. 12.18% in 2011.
- Revenue for Q2 2013 has declined by 13.8% when compared to Q2 2012. The declining revenue however has not hurt the Company's bottom line.
Based on Market IQ's Valuation metrics, Pfizer is trading at a discount relative to its peers (see below). Note: The table shows capped priced multiples
Along with strong Quality metrics and attractive Valuation parameters, Pfizer is a dividend paying company with a current dividend yield of 3.2%. Given its strong earnings capability and dividend stream, Pfizer continues to be favored by sell-side analysts. 7 out of the 13 analysts covering the Company have a "Strong Buy" rating.
Additionally, Market IQ's Relative Risk metrics suggest that Pfizer is likely to provide a smoother ride in terms of price volatility especially during turbulent times. High market Capitalization, historically stable earnings variability, cheap Valuation metrics, and insensitivity to business cycles and credit spreads make Pfizer less risky relative to other companies
Although Pfizer is expected to face top-line pressure from patent expirations over the near term, its strong pipelines, restructuring plans, high Value score, and a respectable dividend yield puts the Company in a very attractive position over the long haul.