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Pfizer Inc. Stock Hurt by Dwindling Revenue Growth Prospects

PFE - Pfizer Inc. Stock Hurt by Dwindling Revenue Growth Prospects

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Pfizer Inc. (NYSE:PFE) stock has struggled since the release of its January 30 earnings report. Despite beats on top- and bottom-line numbers, the stock has been caught up in the swoon that’s hit the overall market in the last week.

As a result, the stock has fallen 13% in the previous week alone. However, despite this lower price, Pfizer’s drug pipeline lacks any compelling offerings that will drive revenues like its former monopoly on Lipitor. Increasing threats to the company’s pricing power have also emerged.

Given the lack of a catalyst, investors in Pfizer stock will likely see little more than rising dividends in a low-growth equity.

PFE Stock Fell Despite Beating Estimates

The drugmaker, famous for pharmaceuticals such as Lipitor, Celebrex, and Viagra, has struggled lately as its recent bestsellers have acquired generic competitors. As a result, the company has suffered for years with shrinking revenues and earnings per share (EPS). For the last five years, average annual revenues have fallen by 2.85%. EPS has been worse, with earnings falling by an average of 6.3% per year.

The company tends to surprise on earnings. For fourth quarter 2017, Pfizer reported earnings of 62 cents per share, beating estimates by 6 cents per share. Revenue for the quarter came in at over $13.7 billion, $20 million higher than expected. EPS improved from the 47 cents per share number reported in 4Q 2016.

However, revenues only increased by 0.5% year-over-year. For the full year, revenues fell from 2016 levels. Still, the company earned $2.65 per share in 2017, an increase of over 10% from 2016’s EPS of $2.40 per share.

Despite the earnings beat, the Pfizer stock price has moved steadily downward since the company announced earnings. In fact, the stock fell from its 52-week high of $39.43 per share to under $35 per share. To be sure, Pfizer stock likely got caught in the wave of selling that has hit the overall market in the last week. Still, it serves as a testament to how PFE stock struggles without a patent on a blockbuster drug.

Threats to Revenue Growth Hamper PFE Stock

Analysts predict profits will climb to $2.94 per share in 2018. They also expect only minuscule amounts of growth through 2021. With no blockbuster drug in the pipeline, upward revisions to these numbers appear unlikely. Currently, the company trades at lower valuations than peers such as Bristol-Myers Squibb Co (NYSE:BMY), Merck & Co., Inc. (NYSE:MRK), Novartis AG (ADR) (NYSE:NVS), and GlaxoSmithKline plc (ADR) (NYSE:GSK).

PFE stock once thrived under its dependence on Lipitor. Since the Lipitor patent expired, PFE stock has not sold a blockbuster drug that drives revenue. Pfizer now has patents on drugs such as Steglatro, a diabetes drug they developed with Merck. They also have been cleared to sell the leukemia drug Bespanso. Unfortunately for PFE, the company’s peers have also developed drugs in these areas.

Also, even if PFE finds its next Lipitor, a worrisome trend is emerging. Americans pay more for prescription drugs than residents of other countries. Hence, at least 19 million American import drugs from other countries to save money. While technically not legal, many cannot afford needed medications otherwise.

Drug companies face a dilemma on this issue. Legalized drug importation would likely hurt profit margins for PFE and all its peers. However, a crackdown would likely cause a political backlash and more open violation of the laws. Either way, a resolution to this issue will likely bode poorly for Pfizer profits.

Dividends Still Remain Solid for PFE

Despite threats to company profits, the stock dividend has served as one of its greater draws. The company has increased the dividend every year since 2011. Today, the company pays its shareholders $1.36 per share in annual dividends. This amounts to a yield of over 3.5%, approximately double the average S&P 500 yield. Even with the profit growth struggles, dividend growth will likely not face threats under current conditions. Still, I agree with my colleague Dana Blankenhorn that Pfizer has become a slow-growth “yield stock.”

Final Thoughts on PFE Stock

Without a catalyst to drive revenue increases, its dividend remains the only compelling offering for buyers of Pfizer stocks. Despite beating earnings in its most recent report, investors found only slow growth and an equity caught up in a volatile market. Without its next Lipitor, analysts see little more than slow growth and modest dividend increases for the foreseeable future.

Moreover, the specter of increased drug importation stands as a threat to profit margins for all drug companies. If one’s only investment goal is a decent, growing dividend, Pfizer will produce that.

Unfortunately for all investors, PFE stock offers little else.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.


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