Why Pfizer (PFE) Is A Great Stock To Buy For The Long Run
Zacks Investment Research | Jun 24, 2016 08:37AM ET
Pfizer (NYSE:PFE) is one of the largest pharmaceutical companies out there. With a market cap above $200 billion, many may think that the company doesn’t have much more room to grow its share price, but what’s not to love? The company has a solid dividend, great fundamentals, and a wide array of household drug brands which drive sizable profits for the company. For the reasons above, Pfizer deserves a spot in your portfolio for the long run.
Dividends
Pfizer has increased its quarterly dividend payout per share by 87.5% since 2009. From that year onwards, PFE has consistently raised its quarterly dividend by $0.02 per share every year. When looking at the company’s cash flows, it is clear that Pfizer can easily afford to increase its current dividend payout substantially. The yield is pretty attractive, and it stands at about 3.5% right now. If you load up on this stock, your dividend yield stands to increase as Pfizer continues to raise its cash payout to shareholders over time.
Fundamentally Sound Investment
While revenues have decreased by a notable margin since 2013, the company is still churning out sales at a high level. 2015 revenues came out to about $48.8 billion, and the company had high expectations going into fiscal 2016, posting sales guidance in a range from $49-$51 billion. After Q1 of 2016 though, Pfizer raised its guidance even higher, and it now expects revenues to fall between $51 billion and $53 billion this year.
Pfizer has bought back over $20 billion in stock over the last three fiscal years, and this has helped to concentrate share value for investors. PFE also has close to $20 billion in cash on its balance sheet, and this will help the company in staying liquid and utilizing its investing power going forward. What’s really great about Pfizer is its ability to consistently beat investor expectations over time. The chart below does a nice job of showing how good things happen to those who consistently top earnings expectations.
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Promising Outlook
Pfizer is expected to experience some headwinds because of patents from some of its name brand drugs which are expected to expire over the next few years. While this is an area of concern worth analyzing, it should be noted that the company does have 30 projects in phase 3 (as of February 2, 2016), the last trial step before seeking drug approval from the FDA.
Pfizer has been known for its attempts to grow and realize synergies through making successful acquisitions. Pfizer’s 2009 acquisition of Wyeth, a fellow drug maker, has been paying off nicely for the pharmaceutical giant, and $4 billion in savings have been realized so far. Wyeth helps to boost Pfizer’s revenues, and its strong presence in the vaccines and consumer health products industries helps Pfizer in diversifying its sales.
Pfizer expects to see $1 billion in annual cost synergies by 2018 as a result of the Hospira acquisition. Hospira was acquired in September of 2015, and the company is a leading provider of injectable drugs. Hospira is a global leader in biosimilars, and the company also specializes in utilizing infusion technologies. Hospira has its hands in these industries, each of which are expected to see significant growth over the mid to long term.
Last month, Anacor (NASDAQ:ANAC) agreed to be bought by Pfizer for $5.2 billion. PFE pursued the acquisition so that it could gain access to Anacor’s non-steroidal topical gel which treats eczema, a condition which up to 25 million people in the US suffer from.
If Pfizer continues to stay aggressive with regards to pursuing value-adding growth opportunities, it stands to realize even more synergies and profitability over time.
Bottom Line
Pfizer seems to be making all of the right moves to pursue more growth for the long run. While shareholders are disappointed that the Allergan (NYSE:AGN) merger couldn’t happen, they still have a lot to be thankful for. They are invested in a company which provides them with income, share buybacks, robust revenues, profitability, and most importantly, a strive towards expanding a wide pipeline of drugs, products, and services for the broader pharmaceutical industry. Pfizer is the biggest pharmaceutical company in the US, and from the moves it is making, it stands extend its lead as the largest player in its industry.
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