Investors like cost-cutting measures as shares outperform S&P 500 index
A year after Pfizer Inc. announced its intention to buy Wyeth Pharmaceuticals, Wall Street is going through a honeymoon phase with the company not seen since the days when Viagra first hit the market.
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Pfizer’s stock, which plunged to a 13-year low of $11.66 last March, has surged recently, hitting a year-to-date high of more than $20 last week, before pulling back to $18.85 by the close of trading Monday. What’s more, the stock has been gradually increasing for nearly 11 months now – a prolonged winning streak not seen for a decade.
“Wall Street is ever the forgiving type,” said Les Funtleyder, a health care strategist for Miller Tabak & Co. in New York City. “The Street is going to give Pfizer the benefit of the doubt for a couple quarters, especially as the overall market remains volatile.”
Analysts point out that Wall Street also is rewarding Pfizer because of a 12.5 percent dividend increase announced late last year. The boost came after Pfizer slashed its dividend in half early last year to help pay for the $67 billion Wyeth deal.
Funtleyder said analysts don’t yet know what to make of the combined Wyeth-Pfizer, but have been impressed by the company’s ability to quickly consolidate R&D sites and take other steps to cut costs. Pfizer’s former worldwide R&D headquarters in New London is one of the research sites to be cut as part of the company’s worldwide consolidation.
So far this year, Pfizer’s stock is up 4 percent, beating all domestic pharmaceutical stocks except for Merck & Co. and far outperforming the Standard & Poor’s index of stocks, which is down 1.5 percent, said Funtleyder. Health care stands as the No. 1 performing sector so far this year, up 2.5 percent, he added.
Pfizer has seen some good upside movement since the Wyeth merger, concluded in October, came to light a year ago today. Even though the overall market gyrated downward over the past week, bringing Pfizer with it, the pharmaceutical giant’s stock still managed a gain of 28 percent – taking into account total return, including dividends – since the Wyeth merger was announced.
“It has outperformed the health care sector, but not the broader market,” said Linda Bannister, a drug firm analyst for Edward Jones in St. Louis who provided the figures.
But Bannister noted that the 28 percent figure might overstate Pfizer’s upside since the merger; the company, she said, is up only 15 percent since the day before the Wyeth announcement, when news of the deal was starting to trickle out, causing nervous investors to sell.
Pfizer’s stock dropped like a rock soon after word about the Wyeth deal leaked out. By March 2, the stock hit a bottom not seen since 1996, two years before Viagra received approval from the Food & Drug Administration.
Pfizer’s stock in the late 1990s was one of the darlings of Wall Street, but it has been in the doldrums for nearly a decade, a long slide precipitated by a dropoff in research-and-development production and exacerbated by such expensive failures as the cholesterol-fighting flop torcetrapib and the inhaled-insulin disaster Exubera.
Adding to Pfizer’s woes is the so-called “patent cliff” coming up in the next two years, highlighted in 2011 by the loss of cholesterol drug Lipitor – the world’s leading medicine – to generic competition.
The Wyeth deal, combined with a host of smaller acquisitions in the past year, has been Pfizer’s answer to the loss of the Lipitor patent. Wyeth has allowed Pfizer to become a more diversified company because of its strength in the emerging field of biologics as well as its consumer-product division, but the jury is still out on whether Wyeth will help Pfizer weather the patent cliff.
“It’s too early to draw any conclusions about the deal,” Funtleyder said. “We may not know until two to three years from now.”
Pfizer does not comment on its stock price or the forces that move investors. A spokeswoman noted that Pfizer will be offering an update on the integration with Wyeth Feb. 3, when the company announces its fourth-quarter and year-end earnings.
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But Wall Street analysts generally like the company’s aggressive stance, with Pfizer chief executive Jeffrey B. Kindler launching the pharmaceutical giant into many different areas – generics, orphan drugs, nutritionals and emerging markets, among them.
“We like the prospects for Pfizer’s more diverse business to deliver sustained cash flows following the introduction of Lipitor generics in ‘11,” said Seamus Fernandez, an analyst for Leerink Swann in Boston, in a recent research note.
Bannister, the Edward Jones analyst, said her company has Pfizer outperforming the market over the next three to five years. She said it’s taken longer than many had hoped for Kindler to turn Pfizer around, but with cost-saving initiatives being implemented, health care reform likely limited and new products to treat Alzheimer’s disease and cancer in the pipeline, she is optimistic.
“Jeff Kindler … has put the structure in place; now it’s all about execution,” she said.
Source: The Day
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