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Is Pfizer Inc. (PFE) Destined for Greatness?

Pfizer Inc.Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Pfizer Inc. (NYSE:PFE) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell Pfizer Inc. (NYSE:PFE)’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Pfizer Inc. (NYSE:PFE)’s key statistics:

PFE Total Return Price Chart

PFE Total Return Price data by YCharts.

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% 3.4% Fail
Improving profit margin 89.3% Pass
Free cash flow growth > Net income growth 161.8% vs. 95.7% Pass
Improving EPS 94% Pass
Stock growth (+ 15%) < EPS growth 88.9% vs. 94% Pass

Source: YCharts. *Period begins at end of Q1 2010.

PFE Return on Equity Chart

PFE Return on Equity data by YCharts.

Passing Criteria 3-Year* Change Grade
Improving return on equity 86.1% Pass
Declining debt to equity (4.4%) Pass
Dividend growth > 25% 33.3% Pass
Free cash flow payout ratio < 50% 43.4% Pass

Source: YCharts. *Period begins at end of Q1 2010.

How we got here and where we’re going
Pfizer Inc. (NYSE:PFE) comes through with flying colors, missing out on a perfect score only because its revenue hasn’t held onto its late 2010 highs. However, net income has boomed over the last two years and has been outpaced by free cash flow, a performance that’s contributed to two passing grades today. But how might Pfizer Inc. (NYSE:PFE) increases its revenue in the coming years? Let’s dig a little deeper to find out.

Earlier this week, Pfizer announced that tofacitinib (marketed as XELJANZ), a rheumatoid arthritis treatment, has been approved for patients who had an inadequate response to existing therapies in several countries around the world, including Switzerland, Argentina, Kuwait, the UAE, and Russia. Up to a third of RA patients don’t adequately respond to available treatments, and about half stop responding to any particular DMARD treatment within five years, according to a Pfizer Inc. (NYSE:PFE) press release. And with millions of patients at stake, XELJANZ could become a blockbuster, despite having a rather awful name.

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