In the current uncertain market environment big pharma stocks like Pfizer
) are worth a look due to their defensive nature, attractive dividend yields and solid growth opportunities. The company reported excellent results, sending estimates higher and the stock to a Zacks Rank #1 (Strong Buy).
About the Company
New York-based Pfizer, Inc. (PFE – Analyst Report) is a leading pharmaceutical company in the world. They have a large portfolio of products and medicines that support wellness and prevention, as well as treatment and cures for diseases across a broad range of therapeutic areas. They also have an impressive pipeline of promising new products. Pfizer had two business segments – Innovative Products and Established Products.
Strong Q1 Results & Upgraded Guidance
Pfizer (PFE – Analyst Report) reported much better-than-expected results for Q1. They beat both on top and bottom lines and also raised their guidance for the current year. Earnings of $0.67 per share handily beat the Zacks Consensuses Estimate of $0.55 per share. The company has an excellent history of beating estimates, having missed only once in last five years.
Revenues of $13 billion were also ahead of the Zacks Consensus Estimate of $11.9 billion. This was the six consecutive quarter of revenue growth for the company. While some of the newer products did much better than expected, results also benefitted from the easing of currency headwinds.
They now expect EPS in the range of $2.38 to $2.48, above the street consensus of $2.30. Revenue guidance of $51 billion to $53 billion was also better than analysts’ estimate of $51.24 billion.
Betting on Growth
Pfizer had to cancel its proposed deal with Allergan that would have created the biggest drug company in the world and significantly lowered the tax rate for the merged entity, in the wake of new rules to restrict US companies merging with overseas firms in order to move their headquarters to low tax countries. They now say they’re not planning to pursue another tax-inversion merger due to new rules.
But the company continues to look for ways to grow. Last month, they announced plans to acquire Anacor Pharmaceuticals for $5.2 billion. With this acquisition, scheduled to close next quarter, Pfizer will add experimental eczema treatment, crisaborole, to its pipeline.
Last year’s acquisition of Hospira has given Pfizer a strong position in the areas of sterile injectable drugs and biosimilars.
The company has also committed a lot of resources towards the development of treatments in the fields of oncology, cardiology, metabolic disorders, neuroscience, immunology, inflammation and vaccines. They believe they can be in leading positions in these areas.
Returning Capital to Shareholders
They continue to reward shareholders through share buybacks and dividends. The current dividend yield is 3.6%. The company returned about $13.1 billion to shareholders in the form of dividends and share buybacks in 2015. They executed a new $5 billion accelerated share buyback in March this year.
Pfizer share are currently trading at 14.4 times forward earnings which I think is quite reasonable given their growth potential. In addition to valuation, solid dividend yield and strong growth potential make this stock an excellent pick for long term income focused investors.
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