Pfizer is Still a Pharmaceutical-Giant Buy

Pfizer (NYSE:PFE)I last covered pharmaceutical giant Pfizer (NYSE:PFE) in September. In the past seven months, the company has undergone a number of changes, including the expiration of the patent for Pfizer’s wildly successful cholesterol medication, Lipitor. So, let’s revisit this bellwether company and see whether it still makes a healthy addition to any well-balanced portfolio.

Company Overview

An institution in the pharmaceuticals industry, Pfizer’s history stretches back over 150 years. Pfizer is responsible for dozens of products, but its most popular brands include Advil, Lipitor, Viagra, Zoloft and ChapStick lip balm.

Pfizer’s main competitors are Merck (NYSE:MRK), Novartis (NYSE:NVS) and Sanofi (NYSE:SNY). Of these four companies, Pfizer has the highest gross margin and operating margin, but has the lowest sales growth. Pfizer employs over 103,000 worldwide.

Industry Breakdown

With a $170 billion market cap, Pfizer is the largest publicly-traded company in the Drug Manufacturers Industry. Out of the 180 companies in this group, Pfizer also has the third-highest earnings growth and the fourth-highest Price/Earnings to Growth ratio.

Also of note is the company’s 3.8% annual dividend yield, which is the fifth highest in the industry and the company’s long-term growth rate, which falls in the top 15% of drug makers. However, when it comes to Pfizer’s sales growth and return on equity, this company falls in the middle of the pack.

Earnings Buzz

Before Tuesday’s open, Pfizer reported mixed operating results for the first quarter.  Compared with the first quarter of 2011, net income dropped 19% to $1.70 billion. Adjusted profits came in at 58 cents per share, but analysts forecast earnings of 56 cents per share, so the company posted a 4% earnings surprise.

Over the same period, sales dipped 7% to $15.41 billion; this slightly missed the $15.47 billion consensus sales estimate. The company’s top line was hit by the expiration of Lipitor’s patent exclusivity. Looking ahead, management is cutting its 2012 earnings guidance to reflect the company’s decision to divest its nutrition business to Nestle (PINK:NSRGY).  While the Street view calls for earnings of $2.26 per share, Pfizer sees earnings in the range of $2.14 to $2.24 per share.

Current Rating

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system.  Over the past year, this stock has stayed in buy territory. But, what’s interesting is that only the stock’s buying pressure is keeping it from being a hold.

Pfizer has plenty of room for improvement on the fundamentals side; the company’s sales and earnings growth are both D-rated. In fact, Pfizer is strong only in terms of cash flow and return on equity. The remaining four variables, including operating margin growth and analyst earnings revisions, receive lackluster grades. This stock receives a C for fundamentals but an A for its Quantitative grade.

Bottom Line: PFE is currently a B-rated buy, but a drop in buying pressure could easily send this stock down into hold territory.

Recommendation: Buy

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