Pfizer in 1Q15: External Forces Pressure Financial Guidance (Part 5 of 5)

(Continued from Part 4)

Forward valuation sees marginal decline

Following the announcement of Pfizer’s (PFE) 1Q15 earnings on April 28, the company’s share price lost a marginal ~0.55%. Its forward PE (price-to-earnings) ratio estimate declined marginally by ~0.6%.

The above chart reflects the forward PE ratio of leading players in the pharmaceutical industry. Johnson & Johnson (JNJ) and Pfizer each have a PE multiple of 16x. Merck & Co. (MRK) and Novartis (NVS) have PE multiples of 16.9x and 19.1x, respectively. Pfizer’s lower PE multiple reflects the concerns that investors have about the long-term growth of the company.

Key concerns

• increasing generic competition for off-patented key drugs

• the expiry of collaboration products such as Enbrel

• the recent loss of Celebrex, which will impact its revenues

• the upcoming expiry of Zyvox in Europe in 2016

To learn more about the loss of exclusivity impacting Pfizer drugs, read What Products Affect Pfizer’s Revenue?

Meanwhile, Pfizer expects to make up for these losses with its new and upcoming product launches. New products including Ibrance and Eliquis are estimated to be major contributors going forward. Upcoming product releases such as Tofacitinib hold great potential for the company.

Dividends and repurchases

Pfizer is on a fast track to return value to its shareholders. In 1Q15, the company repurchased $6 billion of common stock, representing ~2.8% of its market capitalization as of May 1, 2015. Repurchases included a $5 billion accelerated share repurchase agreement in February 2015.

As well, the company increased its dividend by ~8%, up to 28 cents from 26 cents. This translates into $1.8 billion of dividend payments, which is positive for long-term investors.

In 2015, the company plans to return $13 billion to shareholders through dividends and share repurchases.

As an alternative to investing directly in Pfizer, you might consider pharmaceutical funds such as the iShares U.S. Healthcare ETF (IYH) and the Health Care Select Sector SPDR Fund (XLV). Pharma companies make up 42.39% of XLV and 41.39% of IYH.

For more sector analysis and updates, please visit Market Realist’s Pharmaceuticals page.

Browse this series on Market Realist:

• Part 1 - Pfizer Posts Earnings on April 28, Beats Estimates by a Penny

• Part 2 - Pfizer’s Exposure to Overseas Markets Soaks 1Q15 Revenues

• Part 3 - Pfizer Revenues Hit by Lost Exclusivity in 1Q15