Pfizer Inc. Stock: A Good Buy While the Pharma Industry Is Down (PFE)

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The pharmaceutical industry has been hit hard by an ongoing debate in Washington over how to curb the price of prescription drugs.

Pfizer Inc. Stock: A Good Buy While the Pharma Industry Is Down (PFE)Pfizer Inc. (PFE) is no exception — Pfizer stock has lost more than 15 percent over the past year as investors worried that the company’s bottom line will suffer if new laws keeping prescription drug prices down are passed.

However, the New York-based firm has a lot of big things on the horizon, and buying Pfizer shares now while the entire industry is down could provide a lucrative position for long-term income investors.

Merger With Allergan Is A-Plus

One of the biggest factors set to affect Pfizer stock is the company’s proposed merger with Irish pharma company Allergan Plc (AGN). While there is still a risk that the deal won’t go through for regulatory reasons, there are several upsides for PFE shareholders if it is executed as planned.

Most importantly, Allergan represents a huge strategic step for Pfizer. The two companies together would be valued at over $300 billion, making the new entity the largest pharmaceutical firm in the world. Not only that, but Pfizer would have access to Allergan’s extensive product portfolio, which includes popular treatments like Botox, as well as several promising pipeline drugs.

Merrill Lynch has estimated that the merger will add roughly $4 to PFE’s share price.

Tax Implications

A merger with Allergan would also have positive tax implications for Pfizer. The deal could lower the company’s tax rate significantly. Pfizer, bound by US tax laws, is subject to a tax rate of more than 25%, while Allergan enjoys a 4.8% tax rate.

PFE also holds a lot of cash overseas, so if the company moves its headquarters to Dublin following the deal, as planned, it would allow the company to access that more than $70 billion without suffering hefty tax penalties.

New Inversion Rules

However, buying Pfizer stock on the potential Allergan deal alone is a risky bet, as it remains uncertain whether or not the deal will actually go through. PFE executives insist that regulatory concerns will not get in the way of the merge, but lawmakers in Washington have been working to amend the rules governing M&A deals in order to keep U.S. companies from inversion deals.

Buying a foreign company and shifting your headquarters overseas has become a popular way for U.S. firms to save money and avoid taxes, but politicians have vowed to put an end to this practice, and Pfizer could be their first victim.

PFE Is a Long-Term Buy

The Allergan merger isn’t the only case for a long-term position of PFE stock. The company is a good choice for income investors who want a steady, reliable dividend. At the moment, Pfizer stock pays about a 4 percent dividend yield and the company has said it will return value to shareholders this year with a $5 billion share repurchase plan.

Also, while the pharmaceutical industry has faced some questions about where the price of prescription drugs is headed, Pfizer is a relatively secure bet within the sector. The firm has a strong product portfolio, as well as some promising new drugs in its pipeline. PFE has been working to expand into the lucrative cancer treatment space and already has eight approved treatments and three in the final stages of being approved.

All in all, Pfizer stock is a good buy for investors who aren’t looking for rapid gains. Over the long term, PFE stock is likely to increase in value due to its many growth opportunities.

The company’s dividend payment makes it a good choice for income investors, and the fact that it is a healthcare stock means that economic turbulence will have much smaller impact on PFE’s value, as that industry tends to be relatively insulated during times of recession.

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

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Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/pfizer-stock-a-good-buy-while-the-pharma-industry-is-down/.

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