Written by TheDividendManager.com

Pfizer’s (NYSE: PFE) dividend was increased by a solid 7% this week. Its overall yield is 3.90%. The firm started paying a dividend in 1993.

Pfizer is one of the world’s largest pharmaceutical companies with revenue of over $50 billion per year. Top products for the healthcare firm are Prevnar 13, Lyrica, Ibrance, and Enbrel. Pfizer is a global firm with sales outside the U.S. accounting for more than 50% of total revenue. The company has divisions in Global Innovative Pharmaceutical (GIP); Global Vaccines, Oncology and Consumer Healthcare (VOC); and Global Established Pharmaceutical (GEP). Pfizer was founded in 1849 and is headquartered in New York, New York.

Pfizer has maintained a solid three-year growth rate of dividends of 7.7%. Pfizer currently ranks 4th in yield within the large-cap healthcare, major manufacturer category. The quarterly dividend for the March payment will be $0.32 [to shareholders of record at close of business on February 3, 2017]versus the prior year rate of $0.30 per share. Pfizer Inc. is a member of our Top 100 Dividend Stock List (visit site for access).

Quantitative Analysis:

We examine Pfizer based on our five key criteria, which include: 

Additional quantitative information on P/S ratio and historical yield:

Positives:

• Pfizer maintains an investment grade credit rating and a current dividend yield (3.90%) its near its five-year maximum.
• Pfizer has maintained a three-year growth rate of dividends of 7.7 percent.
• Pfizer’s dividend yield is above that of the S&P 500 Index.
• Pfizer maintains a beta of 0.85, lower than the average company.

Negatives:

• Pfizer is trading above its ten-year average price/sales (P/S) ratio.

Latest Earnings & Overall Analysis:

Pfizer issued its earnings data on November 1st.

• The company reported $0.61 EPS for the quarter, missing the consensus estimate of $0.62 by $0.01.
• The company had revenue of $13.05 billion, slightly better than consensus.  
• Pfizer increased the lower end of the guidance to $52-53 billion while bringing down the upper projections to $2.38-2.43 from $2.38-$2.48.  This was primarily due to the discontinuation of product bococizumab.
• On key products, Prevnar beat expectations both Ibrance and Lyrica came in-line.
• On the negative side, Enbrel’s sales were below projections as biosimilar competition picked up.

As for earnings projections for 2017, Pfizer should earn approximately $2.55 per share. Priced at $32.62 a share, Pfizer trades at a very modest 12.79 forward earnings. Its new dividend at .32 cents a share gives Pfizer a yield of 3.92%

Pfizer’s foundation is very strong with an excellent line of products and a promising pipeline of new drugs.

• The firm has an impressive AA credit rating and the financial resources to continue to market and develop new products.
• Pfizer is in the midst of a new product cycle, with several potential blockbusters (over $1 billion in sales) forthcoming in areas of need like heart disease and cancer.  
• There is no doubt that Pfizer faces challenges in the next few years. The upcoming patent loss on Viagra and key drug Lyrica in 2019 will be strong headwinds for the firm.
• However, Pfizer has a venerable position in vaccines and impressive growth from its new products.
• Like another favorite GlaxoSmithKline, its vaccine division gives the company some protection against generic competition. 
  • Pfizer’s pneumococcal vaccine Prevnar 13 is the largest vaccine product for the healthcare giant.
  • The drug has a long patent life ahead and will account for a hefty $6 billion in sales for Pfizer for the next twelve months.
  • Although sales are not expected to grow, the product can serve as a cash generator to help fund further product development and acquisitions. 
  • Prevnar sales were down 2% sequentially, but in Q3 revenue grew 37% versus second quarter due to flu season.
  • Overseas, sales were up 21%.  
  • Prevnar 13 did win approval for use in infants in China to prevent pneumococcal disease as well.
• The firm has more vaccine products in the pipeline including a vaccine for Staphylococcus aureus infections and a potential blockbuster for  Clostridium difficile.

As for growth:

• Pfizer’s Ibrance is one of their key product lines.
  • It is the leader in first-line HR+ (hormone receptor–positive) and HER2- (human epidermal growth factor receptor 2 negative) metastatic breast cancer.  
  • The data on the Phase 3 PALOMA-2 study was positive earlier this year.  The study represented the third randomized study to demonstrate the benefit of Ibrance when added to hormonal therapy in the management of women with ER+, HER2- advanced breast cancer.
  • Expansion of Ibrance to overseas markets will also fuel further growth.
    • Ibrance was approved in the European Union for treating HR+ and HER2- locally advanced or metastatic breast cancer in November.
  • Label expansion is also a noteworthy potential for Ibrance beyond breast cancer.  
    • Pfizer currently has over 60 research programs for Ibrance in breast and non-breast cancers. Its multiple studies include PALLAS, PALLET, PENELOPE, and PEARL. The positive results of these studies should further support Ibrance’s labels.
• Ibrance does have competition on the horizon.
  • Novartis, also a Top 100 Dividend Stock, revealed new data on ribociclib. It had very positive results in cutting the risk of disease progression or death by 44%.  
  • Novartis plans to bring it [to] market as quickly as possible to compete with Ibrance.  
  • Novartis’ product should gain steam in the next several years, however, the impact to Ibrance should be limited as the phase 3 results for these two products looked even...[and,] given Ibrance’s first-to-market status and multiple ongoing label expansion, its hard to imagine this key Pfizer drug will not rapidly gain scale over the next five years.
• Ibrance, along with another pipeline products avelumab, should allow Pfizer to ramp earnings out through 2022...
• With the $14 billion purchase of Medivation, Pfizer is counting on Xtandi (50/50 split with the Japan-based drugmaker Astellas to provide future growth...
  •  Xtandi’s competes with Johnson & Johnson’s Zytiga. Pfizer rolled out the first round of new data since it closed on Xtandi-maker Medivation in September...
  • The 500-patient Plato study was designed to see if Xtandi, when combined with Johnson & Johnson’s Zytiga drug, could prove a better alternative.  However, the Xtandi/Zytiga combo did not prove efficacy but Xtandi is already a blockbuster for Pfizer at $1.87 billion in revenue last year - and, most analyst peg its revenue at $5 billion by 2021.
• With the purchase of Anacor Pharmaceuticals in June 2016 Pfizer gained a new product in crisaberole for dermatitis.
  • Pfizer recently announced that it received FDA approval for crisaborole topical ointment to treat mild-to-moderate eczema in patients two years and older. The ointment will be sold under the brand name Eucrisa.
  • This was a great outcome for Pfizer, given its hefty $4.5 billion buyout. The eczema treatment is projected to be a $2 billion blockbuster drug that helps those with scaly and itchy crusted skin. 
  • Eucrisa had superior efficacy with clear or near clear skin after a mere 28 days of treatment. Better yet, its a first-in-class primary treatment.
• Pfizer’s immunology drug Xeljanz also is a key product.
  • Analysts have projected that Xeljanz’s revenues will rise to $876 million in 2016.
  • The drug has gotten good news in the past twelve months.
    • In March of this year the European Medicines Agency allowed a review for Xeljanz’s application for regulatory approval as a therapy for rheumatoid arthritis who are unable to tolerate methotrexate.
    • Next year, the firm is going to file another application with the FDA to garner approval for ulcerative colitis and psoriatic arthritis...
• In 2015, Pfizer completed an acquisition of Hospira for $17 billion...[thereby] gaining access to Hospira’s leading injectable drugs and infusion technologies as well as its biosimilars.
  • Hospira had maintained a leading position in Specialty Injectable Pharmaceuticals (or SIP) with its ~200 products with differentiated presentations. The advantage is that now Pfizer has a compelling Sterile Injectable business as combining both legacy branded Pfizer portfolio with the Hospira Sterile Injectable portfolio should drive growth.  Legacy Hospira operations contributed $1.1 billion to Pfizer’s third-quarter revenue.
• As far as the rest of the pipeline, there are now 94 clinical programs in progress, of which eight are on regulatory approval watch. 

Although new competition for Enbrel is in the works from Sandoz and with large patent expirations looming, Pfizer has enough new products to sail through the storm. Pfizer is expected to earn $55.4 billion in revenue 2017 and $57 billion in revenue 2018 from continued growth in Ibrance and Xeljanz. Pfizer’s dividend growth rate should give investors confidence that management feels they can overcome the patent expirations...