Seeking Alpha
Research analyst, REITs, biotech, small-cap
Profile| Send Message|
( followers)  

I don't often, or shall I say, I have NEVER written before about my holdings in Pfizer (NYSE:PFE), but today I feel the need to do so. Let me discuss first why I own the stock and then I will discuss recent insider transactions as well as today's announcement which has caught me by complete surprise.

Why I Like Pfizer

Pfizer is a great pharmaceutical/biotech company. It has its hands in a lot of different pies. The company and subsequently the stock have both faced issues with product development, patent cliffs and expensive R&D, among other issues, that have caused concerns with ensuring continued growth and increasing profitability of the company. That said, those issues are beyond the scope of this article. I like Pfizer as it is a large portion of the section of my portfolio devoted to healthcare. I like Pfizer because it is among the largest research and development based companies in America. Aside from a cut to the dividend in 2009 as a result of major company acquisitions and a generally rough time period for businesses in general I own PFE because it is a reliable dividend machine. The 2009 cut was needed if Pfizer was to continue its growth. That said the company has paid dividends EVERY quarter for 75 years. Further, we learned that the dividend has been increased once again, and will now be 26 cents per share for the first quarter distribution, an 8% hike. So, the company, having regained its footing, is working toward an ever better distribution, and has the growth to support it. Further, the company is flush with cash on its balance sheet, having over $30 billion on hand. The company has a lot of options with that kind of cash. I own the company because I enjoy the 3.5% yield and reinvesting the payments in the company to compound my money. So why am I writing this piece?

There May Be Some Issues With Management Getting Along

I was floored today when we learned that PFE and Amy Schulman will be parting ways. She was all but being groomed and spoon fed take over the Vaccines, Oncology and Consumer Health Care Division of PFE. Not only is she not getting the position, she is leaving! We are told this is a mutual decision but frankly that will not be known for some time, if ever. Schulman has also given up her role as general counsel as well. As stated in the SEC Filing on the matter:

. "By mutual agreement, Amy Schulman steps down," and "Amy Schulman and Pfizer have agreed to separate." Finally it also states that the company wished to "thank Amy for the past 5 years of hard work" and good luck "in her future endeavors."

Any kind of analysis of this matter is pure speculation at this point. But what it does suggest is that all is not well among the management team under Chairman and CEO Ian Read. I wouldn't be surprised to See Amy Schulman employed at a large competitor in 2014. This announcement is a huge surprise as it really seemed that Schulman and PFE were poised to get her into the unit director role as her new job. Further, folks I speak to that are much more familiar with PFE than I am are of the opinion that the upcoming PFE internal split will lead to an actual breakup of the company. That would be a massive undertaking but is certainly not outside the realm of possibility. How is the Street reacting to the news? Well, it is not. In fact, most investors do not know what to make of the situation. Volume has spiked a bit following the news but share price has been relatively stable.

So who did PFE ultimately choose instead of Schulman? Management has nominated Albert Bourla, a 20-year Pfizer employee. Susan Silbermann who worked in PFE's specialty care business will replace Bourla. This shakeup suggests to me that there is infighting among management right now. Will it affect the business? I don't think so, at least not yet. What we need to be prepared for is if there are more of these surprises. Maybe Schulman caught wind of a larger issue brewing (a potential breakup?) and decided to leave. Maybe she wouldn't play ball with management's desires. At this point we do not know. What is known is that as a shareholder, or someone trading this stock, we need to be cognizant of this issue coming up again as if there is a similar announcement, the stock could indeed suffer.

More Cause For Concern: Insider Selling

2013 has been a year of intense insider selling. For all of the sales that have been made, there have been no insider buys, at all. People sell stocks for all sorts of reasons, but buy them for only one. With no insider buying and a ton of selling, management is telegraphing they expect their stock to depreciate, or at the very least be stagnant. The stock trades about 21 times earnings, a fair valuation. Not too expensive, not too cheap. Table 1 documents sales in 2013. What is so damning about these sales is that insiders have sold over 30% of their net positions this year, with intense selling this fall.

Table 1. Insider Selling By Executives At Pfizer, 2013.

Month

Number of Shares Sold

Number of Shares Purchased

November

145,500

0

October

338,000

0

September

99,361

0

August

0

0

July

111,188

0

June

0

0

May

239,900

0

April

0

0

March

307,667

0

February

0

0

January

26,752

0

Just over a month ago, CEO Ian Read decreased his position by 23%. Executive Vice President Anthony Maddaluna decreased his position by 48%. Just so we are clear, insiders have dumped over 1.25 million shares in 2013, and no one has bought a single share. Much of these sales came in the fall. This suggests that management is telegraphing a rough period for the stock is approaching.

Conclusion

There is no need to panic, but we need to watch the actions of management closely. These insider sales, as well as the surprise shakeup in management, should come as a shock to anyone who has done their homework on the company. While I often do not opine on the stock, generally because it is a stable business that pays a reliable dividend, management's actions are very concerning. With the stock over $30, management dumping shares all year and this recent surprise change in leadership, I can't blame anyone for taking profits here. There has been a great four-year run in the stock. However, at this point I recommend holding the stock and waiting until we have more clarity on the impact of the internal divisions being created at the company and the subsequent effect on profitability. There are positives. The company just raised its dividend and has a ton of cash. It is taking steps in the right direction, but with management's actions, be warned that the story behind PFE could be changing. This could be a fluke, or the start of something larger. It remains to be seen as we approach the New Year.

Source: Recent Moves By Pfizer Management: No Big Deal Or Telegraphing A Sell-Off?