Can Pfizer Keep Up The Positive Momentum?

Apr.18.13 | About: Pfizer Inc. (PFE)

Pfizer (NYSE:PFE) has had an exciting past 12 months; selling off its nutrition business to Nestlé (OTCPK:NSRGY) for $11.9 billion, and spinning off Zoetis (NYSE:ZTS), its animal health operation. Pfizer also cut some $4.5 billion in costs last year from R&D, sales and administration, and intends to cut more this year. Still, all of that could not completely erase the pain of Lipitor losing its market share, whose sales dropped from $9.6 billion in 2011, to $3.9 billion in revenue last year, dragging down overall sales and profits.

The company still maintains a few drug blockbusters to rely on, like its pain drug Lyrica and pneumococcal vaccine Prevenar 13. Further, the company added 5 new drug approvals in 2012 with the anticoagulant and potential blockbuster Eliquis among them as I discussed in the previous article, Pfizer's 2013 Potential Growth Catalysts.

Pfizer currently maintains a market capitalization at $222 billion and a trailing 12-month revenue near $60 billion. The stock has done well over the past year, approximately up almost 41% and is currently trading at $30.87 right near its 52-week high. So can the company keep up the positive momentum?

Recent Positive Catalysts

Yesterday, Pfizer has been reiterated by TheStreet Ratings as a buy with a ratings score of A. The analyst company cited the reason due to strengths in multiple areas, such as its solid stock price performance, growth in earnings per share, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins.

Further, just last week, on April 10th 2013, the company announced that Palbociclib had received breakthrough therapy designation by the United States Food and Drug Administration (FDA). Palbociclib has already successfully gone through Phase 2 trials, with the conclusion that "The combination of PD 0332991 and letrozole is well tolerated and shows encouraging clinical benefit." At the Citi Global Healthcare Conference, Geno Germano, president and general manager of Pfizer commented as follows:

We were very pleasantly surprised last year when - I'm not sure surprised is the right word - but it was a pleasant day when we saw the outcome of the Palbociclib trial, the Phase 2 trials in breast cancer. And the data are very promising, very exciting.

Many analysts are optimistic about the recent news and developments for Palbociclib. Leerink Swann analyst Seamus Fernandez believes that Palbociclib could become a $5 billion drug, and states that "we assume data at 18 months would be sufficient for approval."

Pfizer's Strong Fundamentals

In the most recent quarter compared to the same quarter a year ago, Pfizer has improved earnings per share by 11.1%. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, the company increased its bottom line by earning $1.26 versus $1.06 in the prior year. This year, the market expects an improvement in earnings: $2.28 versus $1.26.

The current debt-to-equity ratio, 0.46, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, Pfizer has a quick ratio of 1.58, which demonstrates the ability of the company to cover short-term liquidity needs. Further, the company's net profit margin of 41.91% significantly outperformed against the industry.

Conclusion

Although Pfizer's stock price is near its 52-week high, the company's stock price is still attractive. The company has abundant cash, a surprising fact for companies in the healthcare sector, and a valuable pipeline which should replace current blockbusters that might lose market share to generic drugs. Further, in the short term, positive ratings from analysts and positive updates on the company's pipeline should continue to drive Pfizer's share price up.

Disclosure: I am long PFE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.