Pfizer (PFE, Financial) reported surprisingly strong third-quarter earnings results on Oct. 27. The drug manufacturer beat both revenue and earnings per share estimates for the quarter.
Revenue for the quarter was $12.1 billion, $530 million higher than analysts' average estimate. At $12.1 billion, revenue was up 2% from the sequential quarter and down only 2% from the comparable quarter versus analysts' prediction of a 6% revenue decrease. Earnings per share for the quarter were equally strong at 60 cents per share, up 5% from the comparable quarter and beating analysts' average estimate by 9 cents.
Like other drug-manufacturing biotechnology companies, Pfizer's sales are driven by newly marketed innovative drugs. Currently, Pfizer has three new innovative drugs on the market that have exceeded sales expectations. These drugs fueled Pfizer's Innovative Products market segment in the third quarter, resulting in substantial revenue, and are expected to continue growing sales at their current pace in the near term.
In Innovative Products, Pfizer grew third-quarter revenue 13% from the comparable quarter with operational revenue growth of 21%. Eliquis, a leading drug on the market used for the prevention of blood clots, helped push sales in Global Innovative Pharmaceuticals to $3.5 billion.
In Pfizer's Vaccine, Oncology and Consumer segment of Innovative Products, Pfizer's second- and third-leading drugs for the quarter helped increase overall VOC sales to a gain of 29% from the comparable quarter. Prevnar 13 for adults, a vaccine used to prevent fatal infections in the sinuses, inner ear, lungs, blood and brain, led sales in Pfizer’s Global Vaccines segment with specifically strong sales in the U.S. Prevnar 13 sales helped the Global Vaccines segment overall to grow revenue 43% from the comparable quarter and in the U.S. Prevnar 13 contributed to Vaccine segment revenue growth of 78%.
Pfizer's third-leading drug for the quarter was Ibrance. The drug for advanced breast cancer was launched in February and contributed to Innovative Products revenue growth within Pfizer's Global Oncology subsegment which was up 43% from the comparable quarter.
In Pfizer's Established Products business segment, the company reported some key transitions. First, as occurs with many products in the Established Products group, Pfizer's Celebrex, Zyvox and Lyrica drugs lost exclusivity and reported sales declines as a result. Second, a key highlight for Pfizer in the third quarter was the closing and integration of newly acquired Hospira.
The third quarter's earnings results were boosted by added Hospira revenue of $330 million, which included one month of U.S. sales from the newly acquired company. The acquisition of Hospira is expected to be immediately accretive for Pfizer; as the successful integration gets under way, the expected sales revenue has contributed to Pfizer's motivation for raising full-year guidance. As noted in Pfizer's third-quarter earnings release comments, the integration of Hospira will be a work in progress through the end of 2018, adding significant value to the firm's Established Products.
In September, Pfizer completed its previously announced acquisition of Hospira. As previously disclosed, Pfizer continues to expect the transaction to be immediately accretive to adjusted diluted EPS upon closing and accretive by 10 cents to 12 cents per share in the first full year after the close, with additional accretion anticipated thereafter. In addition, Pfizer expects the transaction will deliver $800 million in annual cost synergies by 2018.
Better-than-expected sales from leading drugs Eliquis, Prevnar 13 for adults and Ibrance drove Pfizer's outperformance for the quarter. A more favorable business outlook and additional gains from Hospira also combined with the firm's momentum in its leading innovative drugs led to a guidance increase, further solidifying potential for future value gains in the near term.
For the full year ending Dec. 31, management reported it expects an increase of $1 billion in revenue and an 11 cents increase in adjusted earnings per share. Given the increased expectations, revenue guidance for 2015 is now at $47.5 billion to $48.5 billion and adjusted earnings per share is expected to be $2.16 to $2.20. Additionally, growing at its current pace, Pfizer will likely meet the high end of analysts' estimates for 2016 which call for revenue growth of 11% and EPS growth of 21%.
In trading following the earnings release, the stock opened 2.5% higher. Given the current momentum and added value from the Hospira integration the stock appears to have upside potential of 20% with a current discounted cash flow value of $43.90. Analysts' average target price level also currently matches this analysis at $40. Thus, given the current price of $34.99, now is an opportune time to buy shares of the industry leading biotechnology company.
