Pfizer Earnings Preview: Second Quarter 2009

Pfizer [[PFE]] is scheduled to report their second quarter 2009 results before the market opens on Wednesday, July 22. Based on our analysis, we at are expecting PFE to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $11.31 billion and EPS of $.48. This would represent a 6% decline in revenues from last year’s $12.08 billion in the same period. The current analyst consensus estimates calls for revenues of $11.27 billion and EPS of $0.47. On April 28, the company reaffirmed 2009 revenue guidance of $44 – $46 billion, but reduced 2009 EPS guidance to $1.20 – $1.35 to reflect anticipated costs related to the Wyeth acquisition.


While declining sales & earnings are likely to capture the headlines, we expect Pfizer to post second quarter results that are slightly ahead of Wall Street’s estimates. The pharmaceutical giant has aggressively moved to reduce their cost structure in the face of declining revenues.


While Pfizer’s organic growth is expected to continue to falter as expiring patents and increasing competition from generics take their toll. However, the company’s planned acquisition of Wyeth [[WYE]] is a step in the right direction. We are optimistic that the combined company can generate significant cost savings despite the lingering doubts from Wall Street. We would also look for Pfizer to increase their quarterly dividend next year after the public outcry from investors after cutting the dividend earlier this year.


Share Performance

Since the beginning of the year, Pfizer’s shares have dropped 16%. In 2008, PFE’s shares fell only 22% as the stock outperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 7x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. Pfizer trades at a discounted valuation due to concerns over patent expirations, challenges of integrating Wyeth and the Obama administration’s healthcare initiatives. However, with the stock trading at such a low valuation and a safe 4.3% dividend yield, we believe Pfizer offers investors and attractive risk-reward tradeoff.


Recommendation: Buy with a $18 price target.


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