360 Degrees of Pfizer

Jim Cramer, Helene Meisler and Justin Ferayorni examine the drug giant from all angles.
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Editor's Note:

TheStreet.com

has always believed that offering a wide variety of opinions and viewpoints -- rather than a monolithic "house view" -- helps readers make better-informed investment decisions. In that spirit, we bring you "360 Degrees."

This weekly feature is designed to take advantage of our stable of reporters and contributors, who will offer analysis of specific stocks from all angles -- fundamental vs. technical vs. short-term trader and long-term investor.

Today's subject,

Pfizer

(PFE) - Get Report

, was chosen by the readers

last week; please see our poll below to help determine the next stock to get the "360 Degrees" treatment.

Cramer's Take: Not Too Big to Sell

Pfizer is a value trap. It's making the same amount per share that it thought it would make two years ago. Worse, it has no recognition that it has become a lesser-run pharma, especially compared to

Glaxo

(GSK) - Get Report

,

Sanofi-Aventis

(SNY) - Get Report

and

Novartis

(NVS) - Get Report

. I think that current management is badly overrated. It is too big to be taken over and too unwieldy to pare down, despite the opportunity to sell some consumer products.

I vastly prefer

Schering-Plough

(SGP)

because of its small base and its management, which is hungry and lean. The only drug companies that I think are worse than Pfizer are

Bristol-Myers

(BMY) - Get Report

, because of its patent litigation, and

Merck

(MRK) - Get Report

, because of the lawsuits from its antipain drug Vioxx.

I would avoid it at all costs, and do not by any means be tempted by that dividend, which I think is too high, given the company's prospects.

Jim Cramer is a director and co-founder of

TheStreet.com

. He contributes daily market commentary for

TheStreet.com's

sites and serves as an adviser to the company's CEO. At the time of publication Cramer's charitable trust was long Schering-Plough, although holdings can change at any time. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for ActionAlertsPLUS.

The Chartist: Building a Base

Pfizer's first step in making a bottom was that explosive move off the lows on volume. The next step was crossing that downtrend line.

I've chosen to use a longer-term, weekly chart to illustrate Pfizer's process of making a bottom. It has run into its first resistance at that $26 area. Any move back to the $24 area ought to hold and make the stock buyable.

Pfizer has many layers of resistance as it goes up, but it appears it has seen its low and is now in the process of building a better base from which to emerge. It will likely take several more months for Pfizer to complete its base, but it is on its way and would make a good longer-term investment.

Author of TheStreet.com's Top Stocks, Helene Meisler writes a technical analysis column on the U.S. equity markets and updates her charts daily. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. At the time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.

Justin Ferayorni: Lipitor Is the Key

Let's face it: Pfizer, in many ways, is a perfect microcosm of the entire large-cap pharmaceutical group, which has seen a rash of negative headlines over the last few years. It has been dogged by a variety of issues which have pushed the stock to historic low valuations: the COX-2 fallout on Celebrex and Bextra, which slashed a billion in sales from Celebrex and saw the withdrawal of Bextra, its billion dollar next generation COX-2 drug; multiple patent expiries further contributing to anemic top-line growth; a string of regulatory approval delays at the FDA; and now it faces what may be the biggest challenge of all, with the introduction of generic Zocor later this year.

Zocor, Merck's cholesterol drug, is the second most prescribed drug in the statin class in the U.S. When it loses its patent exclusivity midyear, the generics will sell for pennies at wholesale, initiating a major profit driver for the distribution channel. By substituting generic Zocor as quickly as possible and potentially incentivize customers to switch from Lipitor to generic Zocor, the pharmacy benefit managers (PBMs), drug distributors and retail pharmacy stores will stand to make more money on the transaction as well as save patients and insurers billions of dollars.

The Pfizer bulls believe that Lipitor's therapeutic profile and large dossier of data will continue to differentiate it from Zocor and its generics, slowing mass substitution. The Pfizer bears realize this substitution is a major threat as the drugs are similar and the economics very compelling. Already,

Express Scripts

(ESRX)

, a large PBM, has said it will take Lipitor off its preferred list of drugs.

Pfizer expects more than $13 billion in Lipitor sales in 2006 including $7 billion to $8 billion in U.S. sales, making Lipitor equal to 25% of total company sales and I estimate between 40% to 50% of profits. I expect Lipitor sales to decline in each of the next few years as the economic argument in today's health-care spending environment will trump the somewhat better efficacy of Lipitor.

Nevertheless, I still find it hard to throw Pfizer in the trash bin, considering the current valuation. Pfizer now sports a 12 P/E multiple, and management is scrambling for its shareholders, recognizing that the market has delivered a vote of no-confidence. It recently announced it is

considering the sale of its consumer unit, which should fetch around $10 billion. The company continues to buy back stock as well and will generate billions in cash flow, enabling the company to buy back more stock or buy attractive assets for their shareholders.

From this point forward, the stock's relative success rests on the outlook for Lipitor in the face of the generic Zocor coming to a pharmacy near you this summer. I expect some market share erosion, for sure, as do most analysts on the street. If Pfizer can keep it manageable, I believe the stock will do well from here -- probably in the low to mid-30s in a year from now. If not, this stock is dead money or worse.

At the time of publication, Ferayorni was long Pfizer calls, although positions may change at any time.Justin Ferayorni, CFA, is the founder and principal of Tamarack Capital Management and was an analyst and portfolio manager at Bricoleur Capital. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ferayorni appreciates your feedback; click here to send him an email.