Pfizer Inc.PFE

Morningstar Rating

Stock Research and Analysis

by Damien Conover, CFA

Pfizer's foundation remains solid based on strong cash flows generated from a basket of diverse drugs. The company's large size confers significant competitive advantages in developing new drugs. This unmatched heft, combined with a broad portfolio Read more

Bulls Say

Pfizer has consistently generated returns on capital well in excess of its cost of capital, and we expect this to continue for the foreseeable future.

With a quarterly dividend of $0.18 per share as of December 2009, the stock boasts a dividend yield of approximately 4%.

Cost-cutting efforts associated with the Wyeth merger could exceed our expectations, giving Pfizer the opportunity to generate more profit for each dollar of sales that it collects.

The acquisition of Wyeth brings in a host of strong biologic products that don't face the typical patent cliffs of traditional drugs.

Pfizer's longer-term growth prospects may be underappreciated, as early Phase I or II drugs with blockbuster potential are largely off the radar of most investors. Read more

Bears Say

Torcetrapib's failure in late-stage trials highlights the uncertainty inherent in drug development. The drug had the potential to generate $10 billion in annual sales, and its failure leaves a hole in Pfizer's pipeline.

Pfizer is facing generic competition for several of its products with more than $1 billion in annual sales. Failure to receive FDA approval for its drugs in late-stage development could exacerbate its revenue decline.

Negative reports have highlighted a high correlation between Chantix and increased risks in diabetes, cardiovascular disease, and suicide. The reports dim one of the few bright spots in Pfizer's new drug portfolio.

We estimate that Lipitor generates gross margins in excess of 90%. Even if the firm manages to replace most of the revenue it will lose from generic competition around the end of the decade, its newer products will most likely bring less profit per dollar than Lipitor has.

Pfizer faces significant integration risks with Wyeth. Flight of intellectual talent or failure to achieve projected cost synergies could wreck the potential of the deal. Read more

Strategy

Although Pfizer has historically launched drugs that serve large populations, it is now narrowing its focus on smaller disease states including oncology. It complements its massive research-and-development Read more

Management

In July 2006, Pfizer named Jeffrey Kindler to the CEO post, replacing Hank McKinnell almost two years before McKinnell's expected mandatory retirement. The earlier-than-anticipated departure of McKinnell and the nonpharmaceutical legal background of Read more

Profile

Pfizer is the world's largest pharmaceutical firm, with annual sales near $70 billion. Following the acquisition of Wyeth, prescription drugs now account for close to 90% Read more

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