As far as earnings reports go, the recently unveiled third-quarter news from Pfizer Inc. (NYSE:PFE) was plain vanilla; or a Goldilocks report in the sense that it was neither hot nor cold.
It was room temperature, driving minimal movement for PFE stock despite some raucous reactions — mostly bearish ones — from other stocks in the pharma industry following the release of their Q3 earnings news.
Is boring beautiful in this environment? Yes and no. While the company and most of its shareholders are pleased enough a tepid Pfizer doled out predictable and even boring numbers for the recently reported quarter, the company, as well as owners of PFE stock, know Pfizer can’t simply coast forever.
It’s starting to shake things up, largely because it has to. It’s just not clear how, or how fast, the company is making these moves.
Pfizer Earnings Recap
For its third fiscal quarter ending in early October, pharmaceutical giant Pfizer turned $13.17 billion worth of revenue into an operating profit of 67 cents per share. Analysts were only calling for earnings of 65 cents per share of PFE stock, and though the company technically missed the consensus sales estimate of $13.18 billion, the market mostly treated it like the revenue outlook was met.
Pfizer earned 22 cents per share in the same quarter of 2016, when it did $13.05 billion worth of business. The Q3 2016 bottom line, however, was sapped by one-time accounting charges. Stripping those from the tally, the company would have earned 61 cents per share in the third quarter of last year.
CEO Ian Read commented,
“We reported solid third-quarter 2017 financial results and raised the midpoint of the range for our 2017 Adjusted diluted EPS guidance. Innovative Health revenues grew 11% operationally,, primarily driven by the performance of our key growth drivers, notably Ibrance, Eliquis, Xtandi and Xeljanz, all of which are products that are early in their patent-protected lifecycle in attractive therapeutic areas.”
Pfizer’s pneumococcal Prevnar was also a bright spot, generating $1.52 billion worth of revenue versus analyst estimates of $1.46 billion. Its breast cancer drug Ibrance saw a 60% increase in sales, reaching $878 million for the quarter, though falling short of the $914 analysts had modeled.
Ho-Hum As Is
Credit Suisse analyst Vamil Divan noted of the numbers, “We view these results as refreshingly boring and, given how biopharma stocks have reacted this quarter to disappointing results or product announcements, we think boring is a good thing right now.”
Divan may have been referring to the setback suffered by shares of Bristol-Myers Squibb Co (NYSE:BMY), GlaxoSmithKline plc (ADR) (NYSE:GSK) and Merck & Co., Inc. (NYSE:MRK) — and others — each of which took a tumble following their recent earnings releases even though some of them arguably dished out more good news than bad.
Their pullbacks point to a broad pessimism that PFE stock mostly escaped, only sliding about 0.7% lower on Tuesday following the release of its Q3 report.
Regardless, for the company to drive meaningful growth it’s going to have to make acquisitions. As Barbara Ryan of Barbara Ryan Advisors explained: “It’s a $60 billion company so it’s (stagnant sales) always the issue.., it’s impossible for this company to grow organically.”
The company underscored this idea in its earnings call, pointing out that for all the new drugs it’s developed and brought in the front door, just as many are washing out the back door. Specifically, Pfizer expects to still lose about $2 billion worth of revenue per year through the year 2020 just due to the loss of exclusivity on drugs in its portfolio, as generic versions make their way onto pharmacy shelves. After 2020, the impact diminishes.
The company didn’t say much on the matter of acquisitions during the call, suggesting there’s no M&A on the near-term radar. It’s always on the long-range radar though.
Looking Ahead for PFE Stock
CFO Frank D’Amelio commented “As a result of our strong performance to date in 2017, we narrowed the ranges for certain 2017 financial guidance components, including a $0.03 increase to the midpoint of our range for adjusted diluted EPS to a range of $2.58 to $2.62.
The midpoint of our new guidance range for adjusted diluted EPS implies 8% growth compared with last year. Finally, earlier this month, we announced that we are reviewing strategic alternatives for our Consumer Healthcare business.”
Analysts have been anticipating a full-year profit of $2.56 per share of PFE stock. Pfizer also updated its 2017 revenue guidance to a range of between $52.4 billion and $53.1 billion, versus the average analyst figure of $52.7 billion.
The sale of its Consumer Healthcare business, which includes brand names like Advil, Chapstick and Robitussin, could not only fetch $15 billion that might facilitate a much-needed acquisition, it would allow the company to focus more on its prescription drug business.
The question remains though, what’s Pfizer got in mind in terms of its next deal that drives new growth? Its current pipeline can’t carry all the weight investors expect to be carried.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.