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Are These Spinoffs Better Bets Than Their Parents?– ConocoPhillips (COP)

The Big Pharma Spinoffs

AbbVie was spun off from Abbott Labs on January 1, 2013 and is now the proprietary pharmaceuticals business including the jewel of the crown, blockbuster drug Humira which contributed $1 billion in 2012 sales, and still seeing new indications come online but loses patent protection in 2017. Its second group of drugs on the market, their cholesterol drugs, are already facing sales decreases as generic competitors stepped in late last year. They have 11 drugs in phase III testing, the most promising being an interferon free Hep C combination, but none of these are likely to be rolled out until 2015.

On its January 30 earnings call it announced Q4 2012 results and said they have $7 billion in cash available and are confident that the $1.60 annualized dividend is sustainable. This breaks down to a 4.50% yield at around a 50% payout ratio and they also have $6 billion in operating cash flow. AbbVie trades at a forward P/E of 11.74.

Zoetis, the largest global animal health company, has only been around for two weeks as a separate company and so there’s not much yet to tell. The company is still somewhat attached to parent Pfizer as Pfizer still holds 83% of its stock but in return allows access to its chemicals library for seven more years as Zoetis sees the need.

Zoetis is trading at a pricey 36.56 P/E and doesn’t afford the yield of Pfizer at 3.60% with a much lower P/E of 13.97. But growth is expected to be higher at Zoetis going forward at 5.7%, more than double the 2.61% growth rate for Pfizer. In the US alone the pet products industry is a $53 billion business with spending rising year after year according to the American Pet Products Association and Zoetis sells to 120 countries. Zoetis brought in revenues of $4.2 billion to Pfizer in 2012.

Going Forward

Of all these Sears Hometown and Outlets may be the one with the most upside as its lightly covered and its almost a “no way to fail” business model thanks to its relationship with parent Sears Holdings. This one is definitely better than its parent. Phillips 66 continues to outperform and is as strong a company as its parent. Would-be AbbVie investors may want to do more research in the name but the yield is enticing. Zoetis with the biggest IPO since facebook should be a “wait and see” name but it is in a true growth sector, the $22 billion animal health industry.

The article Are These Spinoffs Better Bets Than Their Parents? originally appeared on and is written by AnnaLisa Kraft.

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