We believe Pfizer, Inc. (PFE) continues to face an uphill battle in growing its top-line given the company's sheer size and lack of a significant pipeline. While near-term earnings growth will come in the form of cost-cutting and share repurchases, the company lacks a catalyst to increase revenues once cholesterol drug Lipitor loses patent exclusivity.
At the current level, Pfizer is trading at only 7.5x our 2008 EPS estimate of $2.37. This is significantly below the peer-group currently trading at around 13.6x 2008 EPS. The wildcard with Pfizer and part of the reason for its cheap valuation, however, is the question of what they will do with their mountain of cash.
We believe that growth investors seeking to play large-cap pharma or biotech can probably find better alternatives to Pfizer. That being said, Pfizer is a pharmaceutical behemoth with hordes of cash looking to find acquisitions that will jumpstart its revenue.
Although we have been disappointed by management's inability to find a significant transaction, we are hanging on to the hope that it is going to happen before Lipitor loses patent exclusivity. As a result and given the stock's cheap price tag and juicy dividend, we believe the shares are worth holding onto. We rate the shares a Hold with a $20 price target.
Jason Napodano, CFA, contributed to this report.
Read the full analyst report on PFE
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