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04/15/2005 12:00 am EST
"Pfizer is off 35% in the past five years and has lost a quarter of its value since 2004 alone," notes Jon Markman. "Have investors’ fears pushed the shares down too far?" Here, he considers the pros and cons to help investors assess the company's long-term prognosis.
"In my view, the record is clear: Pfizer (PFE NYSE) is one of the greatest companies on the face of the earth. And executives’ recent announcement that they plan to cut expenses by $4 billion annually through 2008, buy back tens of thousands of shares, boost the dividend, and roll out more blockbuster drugs should only have augmented its standing. Pfizer may have its faults - overzealous promotion, overeager pricing, or over ambitious research. And it may pay its chief executive too much. But at the end of the day, it is a powerhouse competitor , with 115,000 worldwide employees who help people prevent and recover from illness.
"Meanwhile, Pfizer has an absolute
fortress of a balance sheet, with $7.3 billion in long-term debt compared with
$63.8 billion in equity. It generated $16 billion in cash flow last year alone.
It could be sued by every lawyer in America, lose the right to market a handful
of key drugs, and get sued some more. But Pfizer will still live to fight
another day because it has the financial resources, emotional smarts, and
political savvy to battle and win. And because, more importantly, it is probably
in the right.
"Once the current cloud of suits over its anti-inflammatory drugs lifts, investors will renew their focus on Pfizer’s terrific drug portfolio. The company makes 10 drugs with annual sales of more than $1 billion, with the leader being a cholesterol-slashing statin called Lipitor on track to generate $10 billion this year. It also makes Zoloft to assist depression patients and Viagra for sufferers of erectile dysfunction. An R&D budget upward of $8 billion says they’ll probably figure out some of the next big puzzles or buy the companies that do.
"If you purchase the stock today, it might go down a few bucks. It might even go down another $10, though I doubt it. But over time, Pfizer’s strength and character will attract risk capital again. And with the benefit of a decent dividend, buybacks, and low p/e multiple, Pfizer will almost certainly reward patient investors with a double by 2011. To buy Pfizer today, in short, you need a strong contrarian bent and the kind of patience that 90% of investors don’t seem to be able to muster these days. But as a doctor might say, take a couple of hundred shares and call me in a decade."
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