NEW YORK (TheStreet) -- Pfizer (PFE) - Get Pfizer Inc. Report was one of several blue chip companies to warn investors on Tuesday that foreign exchange swings, due to a strong U.S. dollar, would cut into sales and profit in 2015.
The drug company was also hurt in the fourth quarter by product exclusivity losses of key drug treatments. Pfizer reported earnings of $1.23 billion, or 19 cents a share, for the fourth quarter compared to $2.57 billion, or 39 cents a share, in the year-earlier period. Revenue fell 3% to $13.11 billion from a year earlier.
"During 2014, despite significant continued revenue headwinds from product losses of exclusivity and co-promote expiries, we were able to deliver modest adjusted diluted EPS growth," Chairman and CEO Ian Read said in the earnings statement. "This was achieved through a combination of incremental revenue generation from key in-line products and recent product launches, responsible expense management as well as supportive capital allocation."
For 2015, Pfizer forecast revenue between $44.5 and $46.5 billion and adjusted EPS between $2 and $2.10 reflecting the exclusivity losses and "recent adverse changes in essentially all foreign exchange rates relative to the U.S. dollar compared to foreign exchange rates from last year."
Shares were flat at midday. Here's what analysts said.
BMO Capital Markets (Market Perform; $31 PT)
Overall, we believe Pfizer's 2015 guidance underscores the company's need for a deal. As we published in our preview, without a deal despite high expectations for Prevnar adults, Palbo, and Xeljanz, we do not expect revenue growth for Pfizer through 2017 given the patent expirations and Fx headwinds.
To buy PFE at these levels ($32-$33), one would not only have to expect a deal, but expect a good one. Management reports continued progress in operating within the company's new commercial structure. Pfizer has started down the path of separation and we believe it will likely execute a deal that will facilitate a split; there is simply too much organizational momentum toward this objective. The question is, "at what price and will it make strategic sense?"
Without acquisitions, we see PFE as range bound between $31 and $34; thus, we would have a positive bias below $30 particularly given that Pfizer's significant share buyback and dividend yield provide good support below $30. However, at these levels, we maintain our Market Perform rating.
Vamil Divan, Credit Suisse (Outperform; $35 PT)
PFE reported 4Q EPS (54c) that is slightly above Consensus/CS expectations (CS $0.51, Cons $0.53), driven by slightly higher sales and lower expenses. However, the company delivered 2015 EPS midpoint ($2.05) that is 13c and 12c below Consensus/CS expectations, respectively, which is likely driven by lower-than-expected top-line guidance (-$2 Bn at midpoint) due to a combination of patent expires and FX headwinds, despite lower tax rate (25% vs. our 26% est.) and ~$6 Bn share buyback assumptions. We anticipate focus of the call to be on '15 guidance elements, latest views on M&A/capital allocation amid PFE's >$50 billion cash balance, operational progress of the three business units, and pipeline commentary (particularly Ibrance, immuno-oncology, and biosimilars). Overall, we expect the stock to be down today but we see room for PFE to outperform in 2015 given optionality from business development and/or the pipeline, inexpensive valuation, and group-high 3.4% dividend yield.
Jeffrey Holford, Jefferies (Buy; $40 PT)
PFE reported above consensus Q4'14 revenues (+2%) and EPS (+2%), helped by strong performances from Lyrica and Prevnar-13. 2015 guidance is light vs. consensus for revenues ($44.5bn-$46.5bn vs Cons. $47.4bn) and EPS ($2.00- $2.10 vs Cons. $2.16), though this appears to be driven by worse than expected FX headwinds. We see 2015 as the trough earnings year for PFE and believe that palbociclib, M&A and restructuring should be strong value drivers from here.
Chris Schott, JPMorgan (Overweight)
Pfizer reported 4Q EPS modestly ahead of the street at $0.54 (+$0.01 vs. cons) and provided 2015 guidance of $2.00-$2.10, which not surprisingly is modestly below Street expectations ($2.18). With >60% of Pfizer's revenues coming from ex-US territories, we see FX as the primary driver of variance relative to the Street for 2015 with currency representing a $2.8bn top line and $0.17 EPS headwind for the company in 2015. Beyond guidance, we see the focus of the Pfizer story remaining on management's latest strategic/capital deployment priorities as well as the upcoming Ibrance (palbociclib) approval/launch.
TheStreet Ratings team rates PFIZER INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate PFIZER INC (PFE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- PFIZER INC has improved earnings per share by 7.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PFIZER INC increased its bottom line by earning $1.65 versus $1.20 in the prior year. This year, the market expects an improvement in earnings ($2.25 versus $1.65).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Pharmaceuticals industry average, but is less than that of the S&P 500. The net income increased by 2.8% when compared to the same quarter one year prior, going from $2,593.00 million to $2,666.00 million.
- The current debt-to-equity ratio, 0.48, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, PFE has a quick ratio of 2.18, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for PFIZER INC is currently very high, coming in at 84.33%. Regardless of PFE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PFE's net profit margin of 21.56% compares favorably to the industry average.
- You can view the full analysis from the report here: PFE Ratings Report
- Written by Laurie Kulikowski in New York.