I have been fan of Pfizer (PFE) for some time now and wrote about my position in it several times in 2011. I picked it up at under $18 during the summer of last year. Although it has remained a core and very profitable position for me, it has been awhile since I have updated the argument for owning this safe high yielder. Given it just reported earnings, it seems like a good time to revisit its value story.
Key highlights from Pfizer's earnings report:
- The company reported earnings of 62 cents a share excluding special items, easily beating estimates of 54 cents a share.
- Revenues came in slightly above $15B, approximately $200mm above consensus estimates.
- Pfizer said it plans by mid-August to ask regulators to approve a potential initial public offering of up to a 20 percent ownership stake in the new animal health business, to be called Zoetis. This business has $4.2B in annual revenues and is worth keeping an eye on as it should perform well in an eventual spin-off.
Four reasons PFE is solid selection for value investors at $24 a share:
- The company has an AA rated balance sheet, a low beta (.71) and a 3.7% dividend yield.
- This earnings report marked the seventh straight quarter that the company beat earnings estimates.
- The valuation is very reasonable given the stock's yield. PFE sells for just over 10 times forward earnings and under 10 times operating cash flow.
- Its cost cutting efforts also seem ahead of schedule, and earnings estimates should at least get a bump up based on these latest results. The stock is rated an "outperform" at Credit Suisse and a "buy" at S&P.
Disclosure: I am long PFE.