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Is Pfizer (PFE) Still a Big Pharma Kingpin?

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Despite my recent obsession with Johnson & Johnson (NYSE:JNJ)‘s restoration to health, I’ve long been a closet admirer of rival Pfizer Inc. (NYSE:PFE). Seeing as the company posted solid gains last year — beating the S&P 500 — I regret that I never came out. Then again, that’s not to suggest that it’s too late.

Pfizer Inc. (NYSE:PFE)

While the company does deserve credit for some cost-cutting initiatives since the arrival of CEO, Ian Read in 2010, many of which have streamlined the business, I do wonder if there are enough near-term catalysts to push these shares higher beyond their current 52-week highs. And if fourth-quarter earnings were any indication, management seems determined to put its best foot forward.

Operating performance shows improvement
There aren’t often many surprises from a company like Pfizer (NYSE:PFE) that is as closely followed, but management figured out a way to raise some eyebrows with a better-than-expected performance. Even though the company posted a 7% revenue decline, including a 2% drop due to an unfavorable exchange rate, sales still managed to beat Street estimates by around 4%.

What’s more, even though fourth-quarter pharmaceuticals shed 9% year-over-year, when compared to the 16% decline in Pfizer (NYSE:PFE)’s third-quarter results, the rate of deceleration slowed by 50%. It seems management put more of an emphasis this quarter on marketing its existing portfolio of products such as Lipitor and Norvasc. All of which contributed to an operational sales growth of 20% in emerging markets. And management mentioned the strong performance of China as a key contributor.

Profitability was a bit mixed, however. But that’s not to say the results weren’t encouraging. Net income arrived at $6.3 billion, or $0.85 per share compared to a net income of $1.4 billion in the year-ago quarter. The company received a big boost from the sale of the nutrition business to Nestle for $11.5 billion. Excluding the sale and other restructuring efforts, net income would have arrived at $3.5 billion, of $0.47 per share, which is still $0.03 better than Street estimates.

Time to take the competition seriously
Pfizer (NYSE:PFE) understands its big pharma status. That is to say, management has been a bit too confident about its portfolio. Granted, it’s been for good reason as Pfizer has had some of the top-selling drugs on the market. But competition is beginning to chip away at its lead. And that’s been the case for quite some time.

While management deserves credit for beating both top and bottom line estimates due to cuts, operating income/adjusted EPS did fall 4%. This means that despite strategic cost-cutting efforts — specifically from sales and general administrative expenses, which arrived lower-than-expected — margins continue to be an issue. It’s worth asking how long the company can sustain competitive pressure from generic drugs.

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