Pfizer, Inc. (PFE)

Valuevest (32.04) Submitted: 5/31/08 4:28 PM

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http://www.fool.com/investing/value/2008/05/19/buffett-proclaims-his-ignorance.aspx

http://www.forbes.com/free_forbes/2008/0616/072.html?partner=yahoomag

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JustWokeUp (43.36) Submitted: 6/26/08 10:25 PM

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I think that article might not mean that if there is no drug in the pipeline, or if the pipeline is skinny, then it is OK to ignore it... It is more to the fact that we cannot predict what will happen to the pipeline drugs so it should not matter that much as long as the company is healthy. Is Pfizer healthy?

Forward PE of <10 is still expensive if growth rate is <10 percent.

The dividend is good, I agree, but it is only good because the price has dropped tremendously.

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Valuevest (32.04) Submitted: 6/30/08 1:09 AM

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If P/E is less than 10 and growth is zero, that is a good enough company for me. Especially here where there is cash on hand and no debt (i.e. Enterprise value is billions less than market cap). That would mean they can indefinitely pay their dividend and buyback stocks (in a P/E=10 scenario, which means 10% earnings, they can use 7.5% for dividend and the other 2.5% to buyback stocks). Now negative growth is when I start getting worried so if they are growing at all, this company is WAY too cheap.

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ToddMCTC (29.74) Submitted: 7/24/08 1:34 PM

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The crux of the problem associated with PFE IS the pipeline. Lipitor accounts for 25% of sales and is due to come off patent shortly. Margins and therefore ROE are currently high due to the flow through of benefits associated with past research and development. The productivity of PFE's development has declined from it previous peak. As a result, future sales of blockbuster drugs will not be as forthcoming. Therefore, one of three things must happen: 1. PFE could acquire a promising pipeline 2. PFE could significantly ramp it its spending on R&D or 3. PFE could scale back on the scope of its legendary sales force and other SG&A. Each of these possibilities will not likely be accretive in the near term and will be quite unappealing to Wall St and therefore management. Taking a further examination of your metrics, is a company who's top line is about to permanently decline worth 7x forward Earnings that's a 14% earnings yield by the way. For a perpetuity yielding 6.5% discounted with a risk free rate of 4% and a spread of 300bps (wildly understating PFE's risk) the perpetuity would trade at an approximate 40% discount to face value. That's an equivalent yield on the perpetuity of less than 2%, hardly compensating you for inflation, risk, etc. Yes there is a substantial amount of cash on hand but how will that cash be used? And never make an investment based on the payout that a company makes, it is at their discretion, could be in excess of cash flows and could end at any minute, like on might say when a company buys another for its pipeline or makes a huge R&D outlay. At the very best, net of debt (ie with cash) PFE is fairly valued here. Be very careful.

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Valuevest (32.04) Submitted: 7/24/08 7:13 PM

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Obviously, future income matters to value of any stock and in Pharma future income is determined by success of pipeline. However, no one has a real clue about the pipelines of these companies 5 years down the line but many on wall street think they have a clue. Their thought affects pricing to such an extent that cash generating, dividend paying companies like pfizer become under priced. In the long run, I would rather rely on past performance as predictor of future results than thoughts of wall street analysts .

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