Pfizer (PFE), which now looks little more than a roll-up that provides work for investment bankers while also developing a few products internally, trades at 24X TTM EPS (I use GAAP almost exclusively).
It is planning to purchase Allergan (AGN) at perhaps 35X earnings.
As we all know, AGN's major product is decades old: Botox. Competition against Botox has been increasing, and AGN itself is a roll-up that has continued to do even more deals even after the final Watson/Actavis/Forest etc. roll-up bought it and did the name change thing.
This new Pfizer, assuming the deal closes, will provide endless possibilities to confuse investors with non-GAAP accounting.
I've basically treated PFE as dead money for more than 15 years, though I dimly recalling doing some quick trading in it in the dot-com recession, buying around $29 and selling around $32. Then I traded it in the low $20s and made a couple of bucks. Here it is, numerous acquisitions and divestitures later, back at $32.
Given that JNJ is only 55-60% a pharma company, there is only one Big Pharma company I like, and that's the biotech company Roche AG (OTCQX:RHHBY), which owns Genetech. Novartis (NVS) isn't too bad a company, but the stock is seriously overvalued given a no-growth profile (just less so than some of its peers).
The idea that PFE, which is already debt-heavy, is buying debt-laden AGN is almost bizarre. Bristol-Myers (BMY) is at 64X TTM earnings, Lilly (LLY) is at 38X, etc.
In contrast, Gilead (GILD) is at 10X.
It's not a fair fight from a valuation standpoint. GILD is by far the best dividend-paying pharmaceutical stock of any reasonable size on the planet. Just think. If GILD's earnings totally imploded, and dropped by half, the stock could trade at $210 and still have a much lower P/E than BMY and would be at the same P/E as LLY.
There are no guarantees in the market, but relative value is my favorite way to invest. Thus:
Long and strong GILD.