Pfizer: Analysts Bullish on Cheap Stock
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BOSTON (
) -- Stock-market strategist Jeremy Grantham at Boston-based investment firm GMO says "the outperformance of high-quality U.S. blue chips compared with the rest of U.S. stocks is nearly certain" in the long term.
Grantham achieved a following by avoiding bubbles, including technology stocks in the 1990s and credit markets in 2006. When he's bullish on an asset class, it's wise to emulate him.
Investors seeking to implement Grantham's strategy could purchase an exchange traded fund that tracks the mega-cap
Dow Jones Industrial Average
such as the
Dow SPDR
(DIA) - Get Report
.
Stockpickr: Who Owns Pfizer?
David Dreman
John Paulson
George Soros
|
For stock-pickers, one component to investigate is biopharmaceutical giant
Pfizer
(PFE) - Get Report
. Although its growth and return on equity trail the industry averages, New York-based Pfizer is a grossly undervalued company.
Fourth-quarter profit nearly tripled to $767 million, or 10 cents a share, as revenue gained 34% to $17 billion. The gross margin narrowed from 93% to 81%, and the operating margin fell from 37% to 21%. Recent growth rates can be seen in the chart below.
Pfizer completed its acquisition of
Wyeth
in October, which boosted fourth-quarter revenue 27%, or $3.3 billion. International sales gained 28%, helped by a weaker dollar. Pfizer's international business accounts for 55% of total revenue. For the full year, specialty-care biopharmaceutical revenue soared 84% to $2.9 billion, supported by the addition of Wyeth's Enbrel and Prevnar drugs.
Wyeth's Prevnar 13, a drug used to protect children from bacterial infections such as meningitis and pneumonia, recently received Food and Drug Administration approval.
Standard & Poor's
equity research projects that sales will exceed $3.5 billion by 2012, whereas
Credit Suisse
forecasts $5 billion by 2014.
The drug will likely become Pfizer's top revenue-generator when cholesterol-control treatment Lipitor suffers patent expiry in 2011. Current testing on adult populations, if proven successful, will amplify Prevnar 13's revenue potential.
Pfizer holds $26 billion of cash, equating to a quick ratio of 1.1, and $49 billion of debt, translating to a debt-to-equity ratio of 0.5.
TheStreet's
stock model awards it a financial-strength score of 9.4 out of 10 for its durable balance sheet and consistent operating results. Profitability gauges, return on equity and return on assets, trail industry averages. Underperformance is partly attributable to size. Pfizer has a market value of $139 billion.
The stock has trailed major benchmarks during the past year, but offers an attractive 4.2% dividend yield, evident in the chart below.
Pfizer is undervalued based on all of our relative-valuation measures. Its stock is cheaper than those of pharmaceutical peers based on trailing earnings, projected earnings, book value, sales and cash flow. Its PEG ratio, a measure of value relative to expected long-term growth, of 0.2 reflects a 74% discount to the industry average. A PEG ratio below 1 signifies cheap shares. Here is a snapshot of how Pfizer's stock price stacks up.
Analysts are bullish on Pfizer, with 18, or 72%, rating its stock "buy," five ranking it "hold" and two advising clients to sell shares.
Hilliard Lyons
offers the loftiest price target, expecting the stock to gain 74% to $30.
Analyst Barbara Ryan of
Deutsche Bank
projects the stock will hit $25, implying a 45% upside.
JPMorgan
, Credit Suisse and
UBS
expect it to rise another 40% to $24.
TheStreet's
stock model rates Pfizer "buy," but is less optimistic, offering a price target of $19.94.
The buy-side is being lured by Pfizer's value. All 11 of the stock's largest holders, including
State Street
,
Vanguard
and
Wellington Management
, increased their bets in the fourth quarter.
-- Reported by Jake Lynch in Boston.
