I really liked Pfizer (NYSE: PFE) back in March, where I provided a very broad argument in favor of Pfizer as a strong defensive investment and core stock holding at $22/share. Unlike other names in big pharma, I saw how the company intends to narrow its focus and raise cash on the side. Its R&D budget is also being decreased too (down 19% in Q2 2012 relative to 2011), which is reflecting the company's transition into an acquisition-focused pharmaceutical company.
Although some would criticize Pfizer for negative revenue growth (down 8-9% since 2011), its clear that the company isn't looking for more expansion. Why else would Pfizer sell its fast-growing infant formula business to Nestle for a quick $11.85 billion, or file for an IPO of its animal health unit? Pfizer just wants to maintain itself and reward its shareholders. This will probably come in the form of dividend hikes and share repurchases.
This strategy implies that Pfizer is going to look expensive for a while, based on conventional financial metrics. The trailing P/E of 19, for instance, looks very unattractive given the company's nearly-flat income growth. A P/B ratio of 2.4 also looks pricey. A P/S ratio of 2.9 is very high too. While the forward P/E ratio is supposed to be a lowly 10.9, I personally think that the analyst estimates used to calculate this are far too optimistic.
With its 15% rally since my last article (with no dividend hikes to offer support to the share appreciation), Pfizer has become a bit too expensive for investors that are looking for value (or growth, for that matter). On the other hand, I think dividend investors can expect the company to use its incredibly strong financial position to hike dividends above the expected payout ratio of 39% for 2012. Since PFE yields 3.5% already, expect shares to jump if the company decides to reward shareholders any more than it already does.