PFIZER INC. (New York symbol PFE; www.pfizer.com) is the world’s largest maker of prescription drugs. Its main brands include Lyrica (epilepsy), Celebrex (arthritis), Viagra (erectile dysfunction) and Prevnar (a pneumonia vaccine). Pfizer also makes popular over the-counter drugs, including Advil (pain relief), Centrum (vitamins) and Robitussin (cough syrup). Developing new drugs is expensive and risky. That’s why big companies like Pfizer often prefer to buy other drug developers with promising products. In October 2009, Pfizer bought rival drug maker Wyeth for $68.2 billion in cash and stock. That raised its revenue from $50.0 billion in 2009 to $67.8 billion in 2010. However, revenue fell to $67.4 billion in 2011 after the patent on Pfizer’s Lipitor cholesterol drug expired. It later sold some smaller operations, which cut its revenue to $51.6 billion in 2013. Earnings fell 4.1%, from $8.6 billion in 2009 to $8.3 billion in 2010. Due to more shares outstanding after the Wyeth purchase, per-share earnings fell 16.3%, from $1.23 to $1.03. Pfizer’s earnings then rebounded to $1.11 a share (or $8.7 billion) in 2011 and soared to $2.22 a share (or $15.3 billion) in 2013.
Stock investing: 20 treatments in Phase III trials include arthritis and breast cancer drugs
Pfizer recently offered to buy U.K. drug developer AstraZenica (New York symbol AZN) for about $118 billion. However, AstraZenica rejected the offer and Pfizer has dropped the bid. Buying AstraZenica would have given Pfizer several promising treatments it is developing, including one for cancer. That would have helped it offset revenue it stands to lose as more of its drugs lose patent protection in the next few years. However, Pfizer has 20 treatments in Phase III trials that should spur its growth either way, including Xeljanz (arthritis) and palbociclib (breast cancer). It currently spends 14% of its revenue on research. Without AstraZenica, Pfizer will probably look for smaller acquisitions. As of March 30, 2014, the company held cash of $33.9 billion, or $5.31 a share. It has long-term debt of $27.6 billion. The company is also aggressively cutting its costs, mainly by closing plants and offices. The $1.04 dividend yields 3.5%. In the latest edition of Wall Street Stock Forecaster, we look at Pfizer’s prospects for further acquisitions in light of its earnings forecast for 2014 and its cost-cutting measures. We conclude with our clear buy-hold-sell advice on this stock. (Note: If you are a current subscriber to Wall Street Stock Forecaster, please click here to view Pat’s recommendation. Be sure to log in first.) If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question. COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members When you have owned stocks that attempted a major acquisition and failed, how did you react? Did you hold the stock even if the shares fell in the short term? Did the shares ultimately do well? In the end, did you think the failure of the bid left the company in a worse position, or a better one?
