Recently, Pfizer (NYSE:PFE) announced that it had completed its acquisition of Hospira. Hospira is one of the world’s leading providers of injectable drugs and infusion technologies, and it is a leader in the production of biosimilars. This marks the continuation of Pfizer’s strategy towards a trend that has been popular as of late with large pharmaceutical giants fighting to stave off the effects of blockbuster patent expiry. Hospira adds to Pfizer a portfolio of low-cost generic medications and technologies, including partnerships for improving patient and caregiver cost and effectiveness.
The Hospira acquisition wasn’t enough for Mason Capital to keep its stake in PFE as the fund liquidated its 6.86 million share position according to latest filings. Fisher Asset Management, on the contrary, slightly increased its previous position by 2% to 31.8 million shares. Insider Monkey, whose research shows that keeping an eye on these funds’ long positions is instrumental in generating alpha, shows that Fisher was the top holder of PFE shares among hedge funds. Like Fisher, AQR Capital raised its holdings by 11% to almost 14.3 million shares, but several others funds among the top ten holders of PFE trimmed their stakes. Diamond Hill cut its stake by 2% to 10.2 million shares; Adage by 13% to 7.9 million; and Levin Capital by 20% to 6.4 million. On the whole, institutional holders have been net sellers of PFE with funds buying a little over 164 million shares over the last twelve months compared to selling close to 285 million shares. Insiders have also been net sellers selling 1.7 million shares over the past year compared to purchasing about 222,000 shares.
Insiders can sell for many reasons, so the net selling is not necessarily a cause for alarm or an immediate sign to turn bearish on PFE. Moreover, the hedge fund stance on PFE in aggregate seems mixed at best, so we can’t take much away from their positions in this instance. We must turn to other factors to “break the tie,” and discern if PFE is a resounding buy, sell, or just the type of stock you want to hold if you have it.
According to Forbes, Pfizer ranks #48 in terms of market cap. FiercePharma has rated Pfizer as number 4 by 2014 revenue, a slight decrease from previous years. With sales of $49.61 billion, the research-based global conglomerate is building its portfolio not just in medicine and vaccines but also in consumer healthcare products. The broad ranging strategy of Pfizer seems to be expansion in all areas of healthcare. Notably, this strategy is different from some of its competitors, including Merck (MRK), ranked 6, which has double downed on research, and Johnson & Johnson (JNJ), ranked 1, which is also highly diversified but divides its company into many decentralized sectors. Perhaps this “all things in all areas” strategy lacks focus and could diminish the company’s success in its traditional markets such as pharmaceuticals.
Year to date, Pfizer’s strategy has resulted in a stable but lackluster stock price. Compared to its competitors in the most recent quarter of 2015, Pfizer reported a total revenue decrease year on year of -7.2%. This is a faster decrease than its competitors, who have seen an average decrease of -3. %. With a year-to-date low of $31.13 and a high of $31.72, the stock price has remained steady throughout 2015, despite the loss of notable patents. This is impressive considering the amount of revenue loss Pfizer has had to contend with, including that of major moneymakers such as Lipitor, the world’s former top-selling drug. Lipitor’s sales have declined rapidly year-over–year, declining by 6% in 2013 and 10% in 2012 from a high of $13 billion. Celebrex, the pain-fighting anti-inflammatory agent, has also realized sales declines with its sales down from $3 billion. Zyvox antibiotic, another strong performer for the company, lost its patent protection in May . Meanwhile, Teva Pharmaceuticals (NYSE:TEVA) and other top generic makers are looking to compete in this arena.
Through this year, the company has maintained profitability with margins of 18.46%. Net revenue has been $48.20 billion, and total cash on hand is $30.27 billion. Operating cash flow has been $14.6 billion. Investors have remained loyal, believing Pfizer can regain its footing and chart positive growth. Zacks has rated PFE as a stock to hold. The Wall Street Journal reports a general analyst consensus of overweight for Pfizer, indicating a stock price target of $39.00 from its current $31.37. Doubtlessly, the overweight recommendation has been aided by the fact that Pfizer has generously and steadily increased its dividend year over year. In fact, Pfizer just declared a $0.28 quarterly dividend equating to a 3.3% annual yield. Compared to other pharmaceutical stocks, Pfizer’s yield is among the highest. For those seeking low-risk and income-producing -term investments, PFE may be one to buy and hold.
With a healthy cash flow, Pfizer is a relatively safe bet for a modest return on investment. Investors with higher risk tolerance and seeking higher rewards may want to consider other options. The dividends for Pfizer have steadily risen for the past seven years, but they were fueled by a record number of patent blockbusters. Presently, Pfizer is dealing with a heretofore unprecedented loss of patent exclusivity and no indication that these moneymakers will be replaced anytime soon. Only a handful of new therapies are touted in Pfizer’s pipeline as of 2014. (Hence, their bid to take over AstraZeneca.)
Although Pfizer is a steady income-producing stock, it is unlikely to be a high-flyer. If you are a more aggressive, capital appreciation seeking investor, I wouldn’t recommend buying PFE at this time. If you are conservative and like predictable yields, then PFE isn’t such a bad choice. For more aggressive investment with growth in this sector, you may want to look towards competitor companies who have higher immediate earning potential as the field is crowded with viable challengers with stronger pipelines. More delineation is needed on Pfizer’s strategy for long-term growth, aside from M&A. In the interim, PFE is more “bond-like” than “stock-like” with a relatively stable income stream but not much driving underlying appreciation in the stock price.
Disclosure: The author of the article has no position in PFE or the other securities mentioned.
