S&P Capital IQ estimates that the fair value of Pfizer Inc. (NYSE:PFE) stock is around $26 per share. Assuming this calculation is reasonably accurate, Pfizer is around 10% overvalued currently. Note, though, that many stocks trade well above their fair value. In fact, S&P set a target price for Pfizer for $33 per share — around 15% higher than the stock’s current level.
If we only looked at recent history, future growth would probably be questionable. Pfizer actually reported an 8% decrease in revenue year-over-year for the first quarter of 2013. Primary care, specialty care, and established products business segments saw sales decreases in the double digits.
However, emerging markets and Zoetis Inc (NYSE:ZTS) continue to contribute solid growth — both of which grew at 6% year-over-year during the first quarter. Consumer health care and oncology products are growing strongly.
Declining revenue from Lipitor is problematic for Pfizer Inc. (NYSE:PFE). On the positive side, though, the company counts several new drugs with a lot of potential. Eliquis, Xeljanz, and Xalkori stand out in this group. Looking a little farther in the future, Pfizer and Merck could have a winner with type 2 diabetes drug ertugliflozin, which begins phase 3 trials later this year.
My take is that Pfizer should be able to experience slow organic growth. The company does have $45 billion in cash, cash equivalents, and short-term investments. Some of this stockpile could be used in strategic acquisitions and partnerships that spur growth a bit.
Pfizer’s current valuation discount to several peers reflects its slower growth potential. The stock’s performance hasn’t been overly disappointing, but it hasn’t kept pace with the broader market this year.
Investors shouldn’t overlook Pfizer’s 3.3% dividend yield. With a payout ratio of only 43%, this yield appears to be in solid shape.
Also, there’s always the possibility that Pfizer in the future will dispose of more of its ownership of Zoetis Inc (NYSE:ZTS) in a way that benefits shareholders. That’s an “if” or “maybe” at this point, but it could happen.
There are better investing alternatives in the pharmaceutical world, but I wouldn’t bet against Pfizer. For now, Pfizer stock isn’t one that I’ll buy. However, I don’t think it’s a bad pick for long-term investors wanting a reliable dividend.
The article Pfizer Stock Checkup for May originally appeared on Fool.com and is written by Keith Speights.
Fool contributor Keith Speights owns shares of SPDR Health Care Select ETF but has no position in any other stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.
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