Pfizer plans to buy Hospira, a pharmaceutical drug company specializing in generic injectable pharmaceuticals and so-called biosimilar pharmaceuticals. Pfizer will pay $90 a share in cash as well as assume Hospira's debt.
Pfizer expects the acquisition to be immediately accretive by 10 cents to 12 cents a share in the first full year after the deal is completed later this year. It also said the combined company will deliver about $800 million in annual cost savings by 2018.
Shares of Hospira surged 35% on the news. Pfizer's stock was also gaining, up 2.9%. Here are analysts' initial reactions to the deal.
Gregg Gilbert, Deutsche Bank (Buy rating on both companies; $35 price target on Pfizer)
PFE announced that it plans to acquire HSP for $90/share, or ~$17bn. PFE has been consistent in its desire to bolster its Innovative and/or Established Products businesses with value-enhancing M&A (this one fits into the Established Products side). While the premium and multiples paid to acquire HSP may seem high in a vacuum, we note HSP's scarcity as a large generic injectables player that is also an early leader in the emerging biosimilars space. Both injectables and biosimilars have been areas of focus for PFE in recent years, and HSP is among the leaders in both areas.
We have not yet had time to complete a pro forma model, but we see PFE's predictions of modest initial EPS accretion, and growing accretion as synergies kick in, as reasonable. From HSP's standpoint, we see the decision to sell the company now at a significant premium after the strong run off the bottom as a rational decision, as a larger, deeper-pocketed company such as PFE can accelerate some of HSP's globalization and biosimilars initiatives.
Vamil Divan, Credit Suisse (Outperform rating, $36 price target on Pfizer)
We think the announced acquisition of Hospira (HSP) should be well received as it allows PFE to boost the strength of its Global Established Pharmaceuticals business and enhances their presence in sustainable areas such as branded sterile injectables/biosimilars. Although the deal is not cheap (3.7x EV to 2015 sales), the immediate EPS accretion along with long-term synergies opportunities should also bode well for PFE. The manageable deal size (EV of ~$17 bn) should also allow additional transactions for PFE in light of its strong cash balance. On the call, we look forward to hearing additional color on synergies and timing of deal closure, as well as future business development priorities.
Overall, we see the deal as not totally unexpected, and it won't likely be the last deal that PFE is going to do in the near-to-medium term as they try to boost their two businesses (the innovative business and the established/generics business) ahead of potential split into 2 standalone entities 2-3 years from now. We remain focused on the optionality the company can still provide in terms of business development and its mid-late stage clinical pipeline. These two factors, along with PFE's current valuation and the company's group-high 3.5% dividend yield drive our Outperform rating on the stock.
Jeffrey Holford, Jefferies (Buy rating, $40 price target on Pfizer)
Whilst Hospira is not exactly the OUS cash deal we were expecting, we wanted PFE to augment GEP through a cash deal. We like the immediate accretion and strategic fit with GEP's move towards longer duration growth assets, but even more important is the potential multiple uplift it likely gives GEP if it is separated from PFE in 2017. We think this deal signals a firm intent to separate GEP in 2017 and leaves more firepower for further deals to augment GIP.
Proposed Hospira acquisition is a positive for Pfizer and supports our Buy thesis. We like the immediate accretion and strategic fit that a Hospira acquisition could bring and believe it will move GEP towards longer duration growth assets. More importantly, this deal could give GEP a potential multiple uplift if GEP is separated from PFE in 2017. We think this deal signals a firm intent to separate GEP in 2017 as well as leaving additional firepower for further deals to augment GIP.
Alex Arfaei, BMO Capital Markets (Market perform rating, $33 price target on Pfizer)
Our initial take is that this is a good deal that will likely allow Pfizer to unlock significant value by splitting its Global Established Products (GEP) business probably in 2017.
Valuation seems reasonable, the strategic fit is there: The deal values HSP at 3.75x expected FY2015 revenues, which we believe is fair given that 1) Hospira's revenues are expected to grow by a CAGR of ~6% for the next three years (Hospira's 2018 financial goal is to grow net sales by mid to high single digits); 2) there will be significant operating synergies (Pfizer estimates $800M/year by 2018); and 3) and we believe, most importantly, this transaction not only increases the scale of Pfizer's Global Established Products (GEP) business, but it also provides it with a sustainable growth engine to facilitate an eventual split from Pfizer. Importantly, the deal would make GEP a dominant player in financially attractive markets, such as biosimilars, and specialty injectable pharmaceuticals (SIPs). Hospira is the #1 SIP provider in the markets that it serves, and, with Pfizer's global reach, the combined entity will likely introduce Hospira's widely used SIPs in new markets. Importantly, Hospira appears to have a good SIP pipeline with ~700 potential new-to-country launches and several high-value paragraph-IV products. During its last earnings call, Pfizer's management again stated its goal to become a leading biosimilars company, and Hospira is on track to be a biosimilar leader in Europe with a number of recent submissions.
It is not clear to us how Hospira's devices business would fit into Pfizer's strategy. We would not be surprised if Pfizer, or the GEP/HSP combined entity, later divests this business. We are looking for more details on the call.
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 increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- Despite the weak revenue results, PFE has outperformed against the industry average of 13.3%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- The gross profit margin for PFIZER INC is currently very high, coming in at 72.59%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.36% trails the industry average.
- PFIZER INC's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, PFIZER INC reported lower earnings of $1.42 versus $1.65 in the prior year. This year, the market expects an improvement in earnings ($2.08 versus $1.42).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Pharmaceuticals industry. The net income has significantly decreased by 52.2% when compared to the same quarter one year ago, falling from $2,569.00 million to $1,229.00 million.
You can view the full analysis from the report here: PFE Ratings Report
-- Written by Laurie Kulikowski in New York.