New York-based drugmaker and Dow-30 component Pfizer (PFE –Free Pfizer Stock Report) reported first-quarter earnings of $0.59 a share, versus $0.51 in the comparable period of 2017. The year-over-year improvement was driven primarily by reduced taxes, lower restructuring charges, and a modest top-line advance (+1%), partially offset by increased production (+4%), SG&A (+3%), and research & development (+2%) costs. Meantime, adjusted earnings, which exclude one-time gains, charges, and other nonrecurring items, and are more closely followed by Wall Street, came in at $0.77 a share versus $0.69 in 2017. The adjusted tally beat consensus expectations of $0.74 a share, as sharper cost cutting and lower taxes more than offset weaker-than-anticipated sales. Shares of PFE were trading a few percentage points lower on the release.
In the March period, worldwide revenues advanced 1% year over year, to $12.9 billion. While it represented the third-consecutive quarter of top-line growth, analysts on average had been targeting more in the range of $13.1 billion. The shortfall stemmed largely from softness in two of the company's top-performing franchises, IBRANCE (oncology) and XELJANZ (rheumatoid arthritis). Although the two drugs continued to grow at a healthy pace, posting year-over-over-year gains of 37% and 30%, respectively, the results fell short of Wall Street's marks. On a positive note, Pfizer's top-grossing PREVNAR vaccine franchise outperformed expectations with $1.38 billion in quarterly sales. All in all, management reaffirmed its 2018 top-line guidance of $53.5 billion-$55.5 billion.
The new tax law provided a nice tailwind to profitability in Q1, and should continue to fuel healthy comp growth over the balance of 2018. While this is encouraging, the upside is likely already baked into PFE's recent valuation, and much of the near-term investor focus will likely be geared toward sales growth and pipeline development. On that note, the IBRANCE franchise has now missed in each of the past two quarters, which is certainly cause for concern considering it is one of Pfizer's top new assets and expected to be a key offset to generic erosion in 2018. In our view, recent softness could be reflective of increased competition in the market, as rivals Novartis and Eli Lilly have become more active in the oncology space. That said, we still anticipate IBRANCE to account for the majority of Pfizer's revenue growth in 2018, along with XELJANZ and ELIQUIS. We wouldn't be surprised if management turned to M&A as another avenue to bolster the portfolio. On a side note, the company is mulling a potential sale of its consumer healthcare business, which some believe could fetch as much as $20 billion. A decision is expected later this year.
All told, we continue to view Pfizer as an attractive core holding within the large pharma group. The company has strong finances, high-grade fundamentals, an impressive track record, and is currently trading at an enticing P/E multiple. An above-average dividend yield and expectations for continued stock repurchases should enhance shareholder value.
About The Company: Pfizer is a major producer of pharmaceuticals. The company is engaged in discovering, developing, and manufacturing of healthcare products. Important product names include LYRICA (nerve and muscle pain); PREVNAR (vaccine); ENBREL (arthritis, psoriasis, and more); IBRANCE(advanced breast cancer) and CELEBREX (osteoarthritis, rheumatoid arthritis). The company acquired injectable drugmaker Hospira in 2015 and medical devices producer Medivation in 2016.
— Michael Ratty
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
