Every year, at our annual conference in Las Vegas, we have a session called Hot Stocks. In this session, our analysts present a few companies that are currently exciting in the marketplace, providing analysis and an investment conclusion. This June, one of our “Hot Stocks” was Pfizer (PFE
). Pfizer is the largest pharmaceutical manufacturer, with worldwide sales capabilities of biotech drugs and traditional, small molecule drugs. With the acquisition of Wyeth in November 2009, Pfizer solidified its #1 market share position in most developed countries, and jumped to the top spot in Europe from the #2 spot previous to the acquisition. Now Pfizer boasts 15 blockbuster drugs (drugs whose sales bring in over $1 billion annually) in its product portfolio, the largest number of any of its peers. However, about half of those blockbusters will face competition from cheaper priced generic drugs over the next several years, due to the expiration of their patents. This is one reason many investors may shy away from Pfizer. Today, Pfizer’s market cap is lower than its net operating assets (assets – cash – non-debt liabilities).
Using our ValueExpectations
interface we analyze the embedded expectations in Pfizer’s stock price. Using 35% and -2% sales growth (decline) for this year and next year (average analyst estimates), respectively, Pfizer is expected to have -28% (28% sales decline) annually the following 3 years to justify its current trading price. We think these expectations are low for Pfizer, given the company’s growth in sales of existing drugs that are not subject to patent expiration in the next several years, which are currently growing 7%. In addition, the products purchased in the Wyeth acquisition were growing in the double-digits and consist mostly of biopharmaceuticals with long-term patent protection. Furthermore, most analysts project Pfizer’s sales to decline no more than 6% for the next several years. Therefore, Pfizer is an attractive buy for investors looking for a stock with very low expectations and a dividend yield of almost 5%
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