Stock of the Day- Pfizer (PFE)

[JTrout]

Pfizer

Highlights:
Financial Strength A++
Price Stability 90
Earnings Predictability 100

Safety 1 (highest)

3-5 yr. projections: $45 - $55.

My (elementary) analysis:

This stock was grossly overpriced from 1997-2000 and has overcorrected.
Now selling at close to book value, at a PE of 13, it is a very good value.
The company has been aggressively buying it's own stock.
Although it has suffered through problems in the last couple years, it is still financially strong, has a solid ROE, and
is poised for strong price gains when any good news comes down the pipe.

Buy it up.

[James Boston]

A couple of problems I saw at a glance:

1) They're paying nearly 60% of their EPS back as dividends. I think they could be using this money elsewhere in a more productive fashion.

2) P/E is a tad too high.

3) Pharmaceuticals make me nervous because they often rush to get drugs on the market, and we never know what the next Vioxx is going to be.


That said, their FCF growth seems really good, and I'll look at it closer at a later time.

[parttimepro]

The standard argument against pharma right now is that the pipelines are empty. Does PFE have anything big coming out? Any reason to expect strong earnings growth in the next 3-5 years?

[TGoldman]

I like it. You're right, the stock has been beaten up pretty good the last few years and I don't think it has fully recovered yet. In this situation, I actually like the fact that Pfizer is paying out a dividend, as it will provide a nice safety net on the downside. Nor am I concerned about their dividend policy, as their R&D budget is still the largest in the industry. Even when we adjust their R&D budget to revenue, their "Research & Development / Revenue" ratio is competitive with the rest of the pharmaceutical industry. If we believe their estimated 2006 earnings, then this stock is a good buy IMO.

[adios]

And I'd add that government regulation issues always pose a risk. The bruhaha over the cost of drugs has died down it seems for now though.

[JTrout]

[ QUOTE ]
The standard argument against pharma right now is that the pipelines are empty. Does PFE have anything big coming out? Any reason to expect strong earnings growth in the next 3-5 years?

[/ QUOTE ]

I don't know.

My knowledge of investing in stocks is very limited.
My time applied to studying stocks is, too.

Compared to experts, professionals, and such, it is miniscule.
So even if I did or did not know of potential big things about a certain company, it would long ago be priced into the stock.
So I make very little effort to try.

However, I still want to invest and to take as much of the gamble out as possible.
That points me towards financially strong companies, with a (long) history of making money, that for one reason or another have suffered something bad recently.

If Pfizer had (projected) big things in its immediate future, the price of the stock would be beyond what I'd consider a value.

If Pfizer has bad news in the near future, the price will go down a little.
If it has any good news, the price will go up a lot.

[player24]

[ QUOTE ]
The standard argument against pharma right now is that the pipelines are empty. Does PFE have anything big coming out? Any reason to expect strong earnings growth in the next 3-5 years?

[/ QUOTE ]

Pharmaceutical companies are exposued to competition from generics on drugs with expired patents. One of the games they play to get around this risk is to reformulate the drug in some way, thus creating a new drub with a fresh patent.

One of Pfizer's major drugs, Lipitor, will lose its patent in 2006 (I believe). The company has developed a new pill which blends Lipitor with torcetrapib. One risk (and opportunity) associated with PFE relates to their ability to convert Lipitor patients to the Lipitor/torcetrapib pill. PFE's pipeline valuation is heavily dependent on the success of this conversion (most non-converted patients will end up using a generic Lipitor substitute). I think the Street is looking for a 70% conversion rate by 2007, any shortfall would likely impair the stock.

Incidentally, I have had physicians try to prescribe for me combination drugs which have bells-and-whistles that the generic alternative does not have. If you are a smart patient/consumer, you will be aware of when this happens and you will decide for yourself as to wether the bells-and-whistles have benefits which are worth the added costs.

[disjunction]

I like any big pharma as a stock pick because they seem to have effective lobbyists. Thus, future legislation will tend to be beneficial to companies like PFE (at least in comparison to what the market thinks, which is all that matters).

[adios]

...........

[James Boston]

[ QUOTE ]
Any reason to expect strong earnings growth in the next 3-5 years?

[/ QUOTE ]

I think in PFE's case, the dividend somewhat makes up for a temporary uncertainty of future growth. Although I would rather see a little less of a dividend.