Quiksilver, Inc. (ZQK), Pfizer Inc. (PFE): Tuesday’s Top Upgrades (and Downgrades)

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Pfizer and the winner’s curse
Last and least, we come to Pfizer Inc. (NYSE:PFE). This morning, ace independent analyst Standpoint Research cut its recommendation on the big pharma giant to “sell,” warning that Pfizer Inc. (NYSE:PFE) is exaggerating its earnings by characterizing some of its ongoing costs of doing business as “one-time charges” — when they’re really not. Standpoint also takes Pfizer Inc. (NYSE:PFE) to task for reporting a 15% revenue drop since 2010 (mainly due to Lipitor going off patent), for earning less today than it did five years ago, and for… well, basically just for costing too darn much.

Priced at 13.3 times earnings, Pfizer Inc. (NYSE:PFE) shares get far too much credit from investors for the sub-3% average earnings growth the company’s expected to produce over the next five years. Worse, free cash flow at the company — historically a strong point in Pfizer Inc. (NYSE:PFE)’s favor — now lags reported net income by nearly 2%. This suggests there’s some truth to Standpoint’s accusation that Pfizer is not as profitable as it portrays itself to be.

Finally, Standpoint argues that Pfizer appears tempted to get into a bidding war with Amgen, Inc. (NASDAQ:AMGN) over Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX). On the one hand, the analyst thinks this is a war Pfizer can win. On the other hand, a win at, say, a $10 billion price, to acquire Onyx Pharmaceuticals, Inc. (NASDAQ:ONXX)’s potential $1 billion revenue stream (in 2015), would both add significantly to Pfizer’s $5 billion net-debt load, while at the same time failing to move the needle much on Pfizer’s $57 billion annual revenue stream.

In short, Standpoint sees many reasons to sell Pfizer stock today, and few reasons to buy. That pretty much sums up my feelings, as well.

The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Polaris Industries.

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