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Pfizer's Stock Is Easy to Swallow

Pfizer is inexpensive and has a robust pipeline to fuel growth.

(Updated with earnings results.)



) --


(PFE) - Get Pfizer Inc. Report

first-quarter adjusted profit beat analysts' estimates and the drugmaker reaffirmed its full-year earnings forecast. That's good news.

Much of the pharmaceutical industry is gripped by a common fear: expiring patents on blockbuster drugs. That concern has, in part, depressed Pfizer's shares. The company's top earner, Lipitor, will lose its exclusivity next year. Lipitor makes up about 23% of Pfizer's sales, by far the most substantial product in the company's lineup. But, according to Bloomberg, Pfizer has 30 drugs in Phase III trials, which ought to temper investors' worries.

Competitors including


(MRK) - Get Merck & Co., Inc. Report


Bristol-Myers Squibb

(BMY) - Get Bristol-Myers Squibb Company Report



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(NVS) - Get Novartis AG Report



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also face the same threats. But their shares are relatively more expensive.

Merck's top-earning drug is Singulair, making up 17% of revenue, which has a patent that expires in 2012. Likewise, Bristol-Myers' Plavix makes up a beefy 33% of revenue and expires in late 2011.

Pfizer's forward price-to-earnings ratio is at a steep discount to its peers at 7.7. The industry average is 15.4. Bristol-Myers is at 11.5, while Novartis and Merck are each about 10.3.

Based on price-to-free-cash-flow, Pfizer is a steal. At just 7.6, Pfizer is well below the industry average of 14.4 and miles less than Merck's lofty 48.2. Pfizer has enough cash coming in to keep the research-and-development machine in motion while it maintains a stable AA credit rating from Standard & Poor's.

The PEG ratio for Pfizer isn't appealing at 2.68, well above the level of 1 that signifies a cheap stock. But competitors like GlaxoSmithKline, Merck and Bristol-Myers are all above 1.75, implying that growth is projected to be tight for the industry as a whole.

Pfizer's stock yields 4.3%, putting it in the top five of the

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The pipeline for drug discovery is always going to be a scary and risk-filled prospect for investors. But the fact is that blockbusters are hard to find, and so all pharma stocks will be inherently more risky than a utility or industrial company. Pfizer is cheap and has a solid pipeline that should help fuel growth.

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Pfizer has gotten several votes of confidence from industry analysts, the majority of which label the stock a "strong buy." Ratings'

model has a "buy" rating on Pfizer, thanks in large part to its discount valuation and healthy dividend yield. If you can deal with risk in the pharmaceutical industry, consider Pfizer as a pick with plenty of value potential.

-- Reported by David MacDougall in Boston.

Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.