Pfizer Inc (PFE) Stock Looks GREAT (Once You Get Past the Noise!)

Advertisement

Having a tough time getting a bead on Pfizer Inc (PFE)? Don’t worry — it’s not you. Pfizer stock is currently a walking contradiction, catering to the bulls and the bears.

Pfizer Inc (PFE) Stock Looks GREAT (Once You Get Past the Noise!)And it’s not just on one front that Pfizer stock is teasing traders. It’s on several fronts.

Case(s) in point: Last quarter, PFE managed to top earnings estimates, but its earnings tally was still less than the year-ago bottom line. Its breast cancer drug Ibrance looks poised to become a blockbuster, but its ballyhooed Alzheimer’s drug PF-05212377 was determined to be a disappointment just this week. Some pros believe its impending union with Allergan (AGN) is going to be consummated, while other analysts foresee government intervention barring the deal.

In light of all this uncertainty, it’s no wonder the Pfizer stock price has slumped nearly 20% since the middle of last year.

Perhaps it’s time take a step back, regroup, and take a fresh look (beyond the headlines) at what Pfizer really brings to the table right now.

Pfizer Earnings, Near and Far

To the extent it matters, Pfizer earned an operating profit of 53 cents per share on revenue of $14.05 billion. Analysts were only calling for a bottom line of 52 cents per share of Pfizer stock, and $13.61 billion in sales. The top line was also up from $13.12 billion driven in the same quarter a year earlier, though earnings were actually down about 2% on a year-over-year basis.

And yes, Ibrance and Prevnar (a pneumonia vaccine) made the expected strong showings. Prevnar, in fact, generated $1.86 billion worth of revenue on its own, handily topping the expected $1.69 billion. They just aren’t expected to continue dishing out enough big growth this year.

For the current year, Pfizer is forecasting a profit of between $2.20 and $2.30 per share of PFE stock, supported by revenue of somewhere between $49 billion and $51 billion. Both fell short of analyst projections for a profit of $2.38 per share and sales of $52.5 billion.

A low-balled outlook to ensure relative success in 2016? Most likely.

It’s All About the Pipeline and Portfolio

As well as Prevnar did and Ibrance will do, there’s no denying Pfizer’s portfolio of drugs — like all pharmaceutical companies’ portfolios — is a revolving door. That is, while new drugs are being brought to the market and picking up sales steam, older ones are falling by the wayside.

For example, Pfizer’s once-popular erectile dysfunction drug Viagra reached peak annual sales of roughly $2 billion at one point. Now that it’s lost its patent protection last year, the bulk of that revenue is going away.

The trick is simply pulling more marketable drugs in through the revolving door than you let go out of it. That’s what Pfizer is doing, even if it’s difficult to see.

Yes, Alzheimer’s drug PF-05212377 was a bust, so much so that Pfizer opted to not even bother completing its phase 2 trial of the drug. With no truly great Alzheimer’s drug on the market, a successful development on that front could have been a multibillion-dollar opportunity for Pfizer.

It’s just one drug, though. PFE has a total of 90 projects in development right now, 30 of which are in phase 3, and eight more of which are currently in registration (with the FDA). PF-05212377 wasn’t the most exciting one of those drugs. If anything, a biologic called avelumab (PF-06834635) — as a first- and second-lime treatment for NACLC — is close to serving up the most near-term excitement and opportunity.

With all of that being said, perhaps the most compelling piece of the pipeline right now is the one that’s newest to Pfizer … its CAR T cell partnership with French pharmaceutical company Cellectis.

CAR T cells are a relatively new application, and it’s more of a process than a drug. That process is, in layman’s terms, extracting T cells from a patient, genetically modifying them to better fight disease, and then re-injecting them into the patient.

If Pfizer manages to do what it thinks it can do with CAR T, the very expensive genetic modification process can be replaced with an off-the-shelf version of the drug that doesn’t require a patient to supply his or her own T cells.

The idea is still in its infancy, but CAR T has tremendous promise.

The point is, Pfizer has more working in its favor than against it, even if it’s tough to see, and even if it has to pass along bad news every now and again as it did with PF-05212377.

Bottom Line for Pfizer Stock

As for whether Pfizer stock is a buy right now, that largely depends on your time frame.

For the short-termers, the 20% pullback in the Pfizer stock price is the biggest dip PFE shares have suffered in years, and as such may be an outstanding bounce opportunity regardless of the current state of the economy and 2016’s tepid outlook.

For the true long-term investor, though, Pfizer stock was a buy several points ago; the current price of $29 is a bargain, even as PFE acts and looks like it’s still trying to move lower.

With that being said …

Giving credit where it’s due, Morningstar’s Damien Conover and Michael Waterhouse may have summed up the pro-Pfizer argument best by recently saying:

“We are holding firm to our $38 fair value estimate following Pfizer’s (PFE) steady fourth-quarter results that largely matched both our and consensus expectations. At the current stock price, we believe Pfizer is undervalued with the investment community underappreciating the company’s long-term earnings-per-share growth potential of 9% annually over the next five years, driven by the Allergan (AGN) merger and share repurchases. … We expect Pfizer to gain a more rapidly growing portfolio of drugs, a lower tax rate, and a stronger moat with more diversified patent protected drugs. Further, Allergan offers both fast-growing branded drugs as well as a robust group of older established drugs …”

Investors just have to take a step back and look beyond all the recent headlines to see the company is moving in the right direction.

In other words, Benjamin Graham was right when he said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

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

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/pfizer-stock-pfe-looks-great/.

©2024 InvestorPlace Media, LLC