Pfizer: Dividend Yield Makes It a Haven in This Market

Pfizer (PFE) has seen its shares sink to a ten year low. Wall Street has punished the stock due to a lackluster first quarter that saw revenues fall 5%, clipping earnings by 15% from $0.48 to $0.41. The shortfall was due to PFE losing its exclusive on both Norvasc and Zyrtec - a circumstance the company had no control over.

The company is still soundly in the driver's seat. Analysts are expecting earnings of $2.35 in 2008, resulting in a very low forward multiple of just 7, and are bumping up their 2009 forecasts by 7% to $2.51, which is probably on the conservative side since an array of new products are already in the pipeline. The dividend of $1.28 currently yields a juicy 7.4% annual return and appears very secure at a payout rate of only 54% of earnings.

The company is mammoth, with a market cap of $119 billion and annual revenues of $48 billion. Its cash position of $29 billion is 70% higher than its debt of $17 billion. It is relatively cheap on a book value basis at only 1.78 times book versus its competitors - Merck (MRK), Bristol Myers Squibb (BMY) and Eli Lilly (LLY) all are selling near 4 times book value.

Pfizer initiated an aggressive cost cutting campaign in 2006 and anticipates trimming expenses by $2 billion through 2008. It repurchased $10 billion worth of shares in 2007 or about 10% of its outstanding shares. This reduction in shares will have a accretive impact on earnings in 2008 and beyond.

The company is safe and secure as money usually seeks a "flight to quality" in volatile times. Drug and food companies are often known as "safe havens" and their defensive nature attracts rotation from higher risk sectors looking for more stable investments.

Both AmTech Research and Lehman Brothers have recently raised their opinions, with buy and overweight ratings. The analysts have forecasted a one year price target of $23, representing a 30% premium to today's quote.

This might be a great place to park some money and in the process obtaining more than a 7% yield while your investment goes to work for you. If all goes well, you could end up with almost a 40% APR if you add together the dividend and the forecasted appreciation.

Disclosure: Long PFE.

Comments

[Sabre07:]

Your comments ignore the 2010 patent expiration for Lipitor. This will have a huge impact on EPS and cash flow in 2011 and beyone.

2008 Jul 03 12:11 PM

[BioInvestor:]

Sabre07, I think one can argue that the Lipitor expiration is already built into the stock price.

Mark, can you shed some more light on the products that Pfizer has coming to the market in the next few years. I don't see anything truly exciting.

2008 Jul 03 04:04 PM

[Egg:]

Pfizer does not lose Lipitor (based on current legal status) until Nov of 2011. So basically starting in 2012.

Current estimates for 2012 range from $1.50-2.25/ share.

2008 Jul 03 07:23 PM

[worthy:]

Recall the late 90's when Pfizer briefly touched $50 with a multiple somewhat similar, and almost any drug analyst one listened to back in 1999 felt that Pfizer with its compelling pipeline was expensive for a good reason, and that its future growth was assured. Shift forward 9-10 years and we find the sentiment just the opposite. Back in '99 it was "Viagara all the way". Today it's "no pipeline to replace Lipitor". If this isn't a contrarian's delight, I don't know what one is! I own this stock.

2008 Jul 04 08:50 AM

[ertsfan:]

With picks like this you probably won't need capital gains offsets, but PFE's great benefit is you'll be able to count on taking a wonderful capital loss when you've finally thrown in the towel.

2008 Jul 04 05:14 PM

[BioInvestor:]

ertsfan, do you have any sort of analysis that supports your claim that Pfizer, at today's price, will yield a capital loss?


On July 4, ertsfan wrote:

With picks like this you probably won't need capital gains offsets, but PFE's great benefit is you'll be able to count on taking a wonderful capital loss when you've finally thrown in the towel. Report abuse

2008 Jul 04 06:07 PM

[ertsfan:]

No more than the analysts cited in this and other pro-PFE drivel. Taking S&P as a random sample of one, their price target has been stair-stepping down from 30 to the current 21 at least since 2005. PFE has no pipeline, which is why they bought out Warner-Lambert et al. Their chart has been going straight down since July 2000. For 8 straight years value investors have been heralding PFE has bottomed and "now" is the time to buy (I mean, "now." I mean, "Now." I mean, "NOW"), they have been repeating the mantra of the graying of America and all things drug-related will go up, and they have been touting the dividend. And amazingly enough we still hear about their pipeline, but what significant drug have they produced recently (or even not so recently)? Viagra was approved in 1998. Are you really satisfied with a 7% dividend as your portfolio growth goal? (In comparison, Ken Heebner's CGM Focus Fund is up about 17% YTD.) What's changed about PFE since 2000? Why not force PFE to prove themselves before committing money there? Why not see if they can first hit 18 and stick? Or make them hit 19 and stick? Or, God forbid, force them to stick 20? When PFE hits 17 (then 16 then 15), will the chorus "But it's got a great dividend" make the weak share price okay?

2008 Jul 04 06:55 PM

[BioInvestor:]

ertsfan, it seems that your answer is a "no": you can't support the claim that you made.

I am going to respectively ignore the other unsubstantiated claims you make below.



On July 4, ertsfan wrote"

No more than the analysts cited in this and other pro-PFE drivel. Taking S&P as a random sample of one, their price target has been stair-stepping down from 30 to the current 21 at least since 2005. PFE has no pipeline, which is why they bought out Warner-Lambert et al. Their chart has been going straight down since July 2000. For 8 straight years value investors have been heralding PFE has bottomed and "now" is the time to buy (I mean, "now." I mean, "Now." I mean, "NOW"), they have been repeating the mantra of the graying of America and all things drug-related will go up, and they have been touting the dividend. And amazingly enough we still hear about their pipeline, but what significant drug have they produced recently (or even not so recently)? Viagra was approved in 1998. Are you really satisfied with a 7% dividend as your portfolio growth goal? (In comparison, Ken Heebner's CGM Focus Fund is up about 17% YTD.) What's changed about PFE since 2000? Why not force PFE to prove themselves before committing money there? Why not see if they can first hit 18 and stick? Or make them hit 19 and stick? Or, God forbid, force them to stick 20? When PFE hits 17 (then 16 then 15), will the chorus "But it's got a great dividend" make the weak share price okay?

2008 Jul 05 10:52 PM