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Pfizer Inc.: Why PFE Stock Still Bleeds Despite Solid Earnings

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Pfizer Inc. (NYSE: PFE ) beat Wall Street's profit and sales targets, but PFE stock fell sharply when the pharmaceutical giant offered a disappointing forecast and failed to talk about splitting in two.

Pfizer, AstraZeneca, PFE, AZN

For the second quarter, Pfizer said net income dropped to $2.02 billion (33 cents a share), compared with $2.63 billion, or 42 cents a share, a year ago.

On an adjusted basis, which is what analysts focus on, earnings came to 64 cents a share. That topped the Street's average estimate by 2 cents a share, according to a survey by Thomson Reuters .

Revenue climbed to $13.15 billion from $11.85 billion. Analysts were looking for the top line to hit $13.01 billion.

As strong as Pfizer performed in a number of areas, the market was looking for an accelerating contribution from the Hospira business, which it acquired almost a year ago. Yet the company decided to stand pat on its outlook. For 2016, PFE sees revenue at $51 billion to $53 billion, with adjusted-earnings per share of $2.38 to $2.48 a share.

That's by no means a bad forecast. The Street is currently looking for adjusted earnings of $2.45 a share on $52.64 billion in sales. But the market was expecting a boost with Pfizer enjoying strength in a number of key areas.

Top drugs such as the nerve-pain drug Lyrica and breast cancer therapy Ibrance drove a gain of more than 7% in the company's innovative health division.

This is not to say that the Hospira deal wasn't worth it, especially given that sales of former blockbusters like Lipitor continue to fade. Indeed, sales in Pfizer's established drug business actually fell 6% when Hospira's contributions are excluded. Plug Hospira back in and revenue rose 16%. In total, Hospira's legacy business added $1.1 billion to top-line results.

PFE Stock Is Still a Steady Blue Chip

Beyond Hospira, it was a generally well-balanced quarter for PFE. As CEO Ian Read said in a media release :

"This performance was driven by all areas of the company, reflecting ongoing strength from our recent product launches and key in-line products, the contribution of legacy Hospira products, continued improvement in the revenue profile for our standalone essential health business, the advancement of our product pipeline and sound capital allocation choices."

Pfizer stock was up 16% for the year-to-date before stumbling on earnings, but Tuesday's selloff is almost certainly overdone. In addition to only maintaining its outlook, PFE also failed to give any hint as to whether it will split in order to free the faster growth patented drug business from retreating sales of generics.

There's no question the market would love such a move, but it's going to have to remain patient. Most management teams loathe having to make their companies smaller, for one thing. It's also clear to a number of analysts that a split may never transpire.

With a forward price-to-earnings multiple of 13 on a long-term growth forecast of 7% a year, PFE stock might not be a steal, but neither does it look particularly pricey. Furthermore, the dividend yield of 3.25% and stock buyback program give Pfizer a stock a solid total-return floor.

PFE stock might not be a chest-beating buy, but the investment thesis remains intact after Q2 earnings. As a long-term, blue-chip hold, Pfizer stock looks as good as ever.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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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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