Pfizer has what is possibly the most diverse drug portfolio in the sector, with products including Lipitor, Novarsc, Lyrica, Prevnar, Enbrel, Celebrex and the world-famous Viagra, just to name a few.  The company has been active in acquisitions, which has been the biggest driver of growth over the past decade.  The most recent major acquisition was Wyeth, which Pfizer purchased for $68 billion in 2009, significantly exposing their exposure to the vaccines market.

Pfizer spends approximately $8.5 billion annually on research and development of new products.  Currently developing 78 compounds, 25 of which are in late Phase 3 approval or registration.  One of Pfizer’s competitive advantages is that its R&D capabilities are much greater than that of their peers. However, analysts believe Pfizer is capable of more than it has produced in recent years.  An increase in R&D efforts would be welcome news during the earnings call.

In terms of valuation, Pfizer seems very fairly valued compared to its peers.  Currently, the stock trades at just 12.2 times 2012’s consensus earnings of $2.16 per share. However, the company is projected to have slower-than-average earnings growth for the next few years.

In comparison, the No. 2 pharmaceutical company by market cap, Novartis AG (ADR) (NYSE:NVS), trades for 18 times earnings, albeit with more earnings growth expected.  The same is the case with No. 3, Merck & Co., Inc. (NYSE:MRK) which trades for 20 times earnings.

Consensus estimates for Pfizer call for earnings of $2.29 and $2.35 in 2013 and 2014, respectively, an average growth rate of just 4.3% for the next couple years.  The most common reasons cited by analysts for the slow growth include lower gross margins and the sale of the company’s nutrition business to Nestle this past November.  Before buying into Pfizer, I would want to see the growth issue addressed.

However, those who invest now may be handsomely rewarded if Pfizer does figure out the path to earnings growth.  Pfizer’s 5-year historical average P/E is 16.6 times earnings, a considerably higher valuation that the stock is presently trading for.  Using this multiple, that gives us a potential $35.85 price target if things start to work out.  In the meantime, investors are paid nicely to wait, as the company yields a healthy 3.6% dividend.