3 Reasons Pfizer Inc.'s Stock Could Rise

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Pfizer , arguably the preeminent pharmaceutical company in the world, continues to pump out billions in free cash flow annually, deliver delectable gross margins, and pay out an annual dividend that puts the S&P 500 average yield of 2% to shame.

Yet, if you've been a shareholder in Pfizer over the past 15 years, and didn't purchase Pfizer stock during the Great Recession, things haven't been so great from a share price perspective.

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The reason for this is Pfizer's ongoing transition from legacy drugs, for which it continues to lose patent exclusivity on, to a number of new compounds. This multi-year transition has certainly led to a number of bumps and potholes in the road, as evidenced by the company's second-quarter results.

For the quarter, which was reported three weeks ago, Pfizer delivered $12.77 billion in sales, down 2% from the prior-year period, as adjusted profit per share rose 4% to $0.58. A robust share repurchase program continues to play a big role in boosting its EPS. As noted by CEO Ian Read, "I continue to see Pfizer as well positioned to effective execute on our strategy to further strengthen each of our businesses on a global basis and deliver value to all of our stakeholders."

But, Pfizer might be about to ditch its old persona and reward shareholders in a big way. Unfortunately you're not often going to find the nature of the catalysts that could lead this move higher by scratching at the surface in an earnings report. You need to be able to dig below the surface to get at what factors could be the basis of a strong rally in Pfizer's stock. Today, we're going to take a closer look at three such catalysts.

However, before we do that I should make one thing clear: the stock market is a two-way street, and stocks can just as easily go down as they go up. Even with a bullish thesis on paper external and even internal factors can arise which could pressure Pfizer and send its share price lower. So keep that idea in the back of your mind as you're reading this optimistic view on Pfizer.

Source: Pfizer investor presentation. Source: Pfizer.


Though Pfizer has an extensive pipeline with a number of exciting existing and upcoming products, including fibromyalgia drug Lyrica which grew sales by 15% operationally during the quarter to $1.32 billion and remains its best-selling drug, as well as Xalkori and Inlyta, two of its oncology drugs which grew operational sales by 59% and 42%, respectively, experimental compound palbociclib remains a cornerstone to its potential success.

Palbociclib, hereafter known as palbo, is the company's first-line estrogen-positive, HER2-negative breast cancer drug given in conjunction with Novartis ' Femara that dropped investors' jaws in 2012 when Pfizer, during a planned interim analysis, announced that it produced a median progress-free survival of 26.1 months, more than triple that of the Femara monotherapy arm at 7.5 months.

It was this data which helped Pfizer earn the breakthrough therapy designation from the Food and Drug Administration for palbo in April 2013. If you recall, the breakthrough designation allows companies to submit game-changing drugs for approval utilizing earlier-stage data if the trial data demonstrates a marked improved over the current standard of treatment.

This year Pfizer released additional data on palbo, showing that palbo in combination with Femara produced a progression-free survival improvement of 10 months (20.2 months versus 10.2 months) compared to Femara alone, and that overall survival improved by 4.2 months to 37.5 months from 33.3 months in the Femara control group. Though this secondary endpoint of overall survival didn't qualify as a "significant" difference, the strong progression-free survival numbers should help make palbo a strong candidate as a first-line drug in ER-positive, HER2-negative patients.

With peak annual sales estimates ranging from as low as $3
billion to originally as high as $9 billion when its interim
analysis came out in 2012, it would appear that Pfizer is readying
to unleash a monster onto Wall Street within the next couple of

Pfizer AACR analyst briefing . Source: Pfizer.

With peak annual sales estimates ranging from as low as $3 billion to originally as high as $9 billion when its interim analysis came out in 2012, it would appear that Pfizer is readying to unleash a monster onto Wall Street within the next couple of quarters.

Merger and acquisition activity

If Pfizer made one thing very clear during its second quarter earnings conference call, it's that it remains actively on the hunt for acquisition and/or merger opportunities.

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PFE data by YCharts

And don't forget that Pfizer's current dividend yield of 3.5% handily trounces what you'd find in a bank, credit union, or even with a U.S. Treasury bond at the moment.

As highlighted during its conference call, Pfizer has returned $53 billion in buybacks and dividends to shareholders just between 2011 and 2013. Look for this aggressive share repurchasing and dividend growth to continue in the near future.

Tying everything together

Despite being a company in transition there are a handful of key catalysts which look poised to push Pfizer's stock higher. A successful launch of palbo, a well-orchestrated merger or collaboration, as well as ongoing share buybacks and dividend increases could be the perfect formula to reignite growth in Pfizer's top and bottom line and send its stock significantly higher.

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The article 3 Reasons Pfizer Inc.'s Stock Could Rise originally appeared on

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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