Pfizer's Double Disappointment a Good Buying Opportunity

NEW YORK (TheStreet) -- Investors in Pfizer (PFE) have taken their lumps of late. On Friday AstraZeneca (AZN) the British drug manufacturer rejected a sweetened acquisition offer from Pfizer that was valued at more than $106 billion on the grounds that the amount undervalued the company. That's not surprising since AstraZeneca has a market cap of more than $101 billion.

>>Read More: Pfizer Needs AstraZeneca More Than Ever as Generics Increase


The second disappointment for Pfizer and its shareholders emerged before the markets opened today. The company reported sales profits fell 15% in the first quarter of 2014 on revenue of $11.4 billion. After the markets opened Pfizer fell 2.5% to less than $30 a share.

The biopharmaceutical giant has a plethora of products and brand names on which to drive earnings. These include Lyrica, the Prevnar family of products, Enbrel, Celebrex, Lipitor, Viagra, Zyvox, Norvasc, Sutent, and the Premarin family of products. Among its consumer healthcare products there are Advil, Caltrate, Centrum, ChapStick, Emergen-C, Preparation H, and Robitussin brands.

>>Read More: Why Intermune Stock Is Up Today


These helped Pfizer report "Adjusted Diluted EPS" for the quarter to hit 57 cents and its "Reported Diluted EPS" of 36 cents. These EPS numbers were slightly better than analysts expected, but the 15% profit decline was worse than predicted.

This 1-year chart illustrates the key financial trends leading up to the disappointing May 5 earnings release.

PFE ChartPFE data by YCharts

The company's quarterly diluted year-over-year EPS had precipitously declined in the last quarter of 2013 while its revenue growth had been mainly flat. The 9% quarterly year-over-year decline in revenue in the first quarter of 2014 is a wake-up call offering more insight as to why its CEO Ian Read is bound and determined to acquire AstraZeneca.

In my opinion, and I'm not alone, Pfizer wants to reinvent itself as a British company. If it can domicile itself in the U.K. it will avoid millions of dollars in U.S. taxes each year.

Pfizer also wants to buy AstraZeneca because its pipeline of new drugs in development may help Pfizer's falling EPS and floundering quarterly sales profits. With expired patents on some of Pfizer's blockbuster drugs like Lipitor, cheaper generic brands are entering the market and cutting into its profits.

>>Read More: Tim Cook's Biggest Failure at Apple


That's one of the reasons I expect to see the company continue to pursue the purchase of AstraZeneca, even if it means raising the offer price. By using more cash vs. stock Pfizer could keep from diluting the share price.

>>Read More: Regeneron-Avalanche Partnership Underscores Ohr Pharma's Eye-Disease Isolation


Even if it increased the buyout price-per-share by as much as 10%, my research suggests that the addition of the U.K. drug company would add to to Pfizer's earnings beginning next year.

For the moment investors may see the stock's correction as a chance to establish or add to positions. At $30, shares of Pfizer offer a dividend yield-to-price of nearly 3.47%. Competitors such as Merck (MRK) currently offers only a 3.01% dividend yield, while Bristol-Myers Squibb (BMY) shares yield 2.88%.

Pfizer continued its aggressive stock repurchase program in the first quarter, buying back $1.7 billion of its common stock. It's also a company known to offer shareholders worthwhile spinoffs like last year's spinoff of its animal health products division now trading under the name Zoetis (ZTS).

Once the cloud of uncertainty about the AstraZeneca deal is settled I anticipate Pfizer's share price to recover with a 1-year price target of $34. While investors wait they'll be rewarded with a generous dividend and the prospect of more stock buybacks in the quarters to come.

At the time of publication the author had positions in PFE

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Google+

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

More from Opinion

AAP Exclusive: Cramer Says The President is No Longer on the Side of the Bulls

AAP Exclusive: Cramer Says The President is No Longer on the Side of the Bulls

Why It Makes Perfect Sense for Netflix and Amazon to Buy Up Movie Theaters

Why It Makes Perfect Sense for Netflix and Amazon to Buy Up Movie Theaters

2 More Reasons to Sell All Your Stocks and Run Away

2 More Reasons to Sell All Your Stocks and Run Away

Sean Hannity's Link to Trump Lawyer Raises Questions: Doug Kass Insider

Sean Hannity's Link to Trump Lawyer Raises Questions: Doug Kass Insider

Netflix Blowout Earnings Remind Investors of One Thing: This Company Is a Beast

Netflix Blowout Earnings Remind Investors of One Thing: This Company Is a Beast