Joel Greenblatt (Trades, Portfolio) is founder and managing partner of Gotham Asset Management, LLC. He is known for the invention of Magic Formula Investing. He is the author of two investment books, including Joel Greenblatt: The little Book that Beats the Market
Greenblatt tries to find cheap and good companies. He looks for value with a catalyst. Greenblatt likes special situations, and thinks that they are simply different places to find cheap stocks. In his own hedge fund, Greenblatt uses the basic principals in the Magic Formula: Look for high ROC and high earnings yield. He tries to figure out what "normalized earnings" will be 3-4 years into the future. Greenblatt makes sure the stock is very cheap based on normalized earnings.
Last quarter, he increased his holdings in Pfizer Inc. (PFE, Financial) by buying 551,840 shares. As of March 31, 2015, he was holding 1,972,788 shares of the company. The following chart shows his holding history in the company.
Pfizer Inc. is a research-based, global biopharmaceutical company. The company is involved in the discovery, development and manufacture of healthcare products. Its global portfolio includes medicines and vaccines, as well as many of the world’s best-known consumer healthcare products. Pfizer recently reported better-than-expected results with adjusted EPS of $0.51 versus $0.49 consensus and revenues of $10.9 billion versus $10.72 billion consensus. Commenting on the results, the company's Chairman and CEO Ian Read said:
"We began the year with good performance on both the top and bottom line and I believe the company is well-positioned in terms of in-line products, recent product launches, geographic reach and product pipeline."
However, Pfizer lowered its guidance for the full year 2015. The company now expects full-year adjusted earnings of $1.95 to $2.05 per share versus earlier expectations of $2.00 to $2.10, on revenue of $44.0 billion to $46.0 billion verus earlier expectations of $44.5 billion to $46.5 billion. However, one should note that these guidance change is solely a result of negative impact of recent currency movements and the company's operating outlook has actually improved compared to the begining of the year.
Pfizer's share price has remained rangebound over the last two years. During the last few years, the company has lost significant revenue due to loss of exclusivity (patent expiry) and co-promote expiries from several high margin products like Lipitor Enbrel in Canada and the US, and the loss of Spiriva. The company was, however, able to maintain its operating margins by cutting costs. Over the last four years, Pfizer have taken approximately $5.5 billion out of from operating expenses. Management expects these ongoing expense reductions efforts to continue over the next few years.
In order to enhance shareholder returns during this tough period, Pfizer has returned about $64 billion to shareholders with share repurchases and dividends over the last four years. The company expects to return another $13 billion to shareholders in FY2015. Management expects FY2015 revenues will see a negative impact of $3.5 billion from loss of exclusivity on certain products and of $2.8 billion due to adverse changes in foreign exchange. They will be partially offset by nearly $2 billion of anticipated operational revenue growth in certain products like Eliquis, Xeljanz, Prevnar 13 Adult, Trumenba, Inlyta, Xalkori and Nexium 24HR.
Pfizer is trading at 16.5 times it FY2015 EPS. The company has a forward annual dividend yield of 3.30%. In the near term, patent expiry and forex headwind are expected to adversely affect the company's topline growth. However, the real promise for Pfizer's shareholders lies in the strength of its late and mid-stage pipeline, which will help it grow its revenues in the medium term. Meanwhile the company's high dividend yield, cost cutting initiatives, share repurchases and low valuations are expected to provide support to the shares.
