Stock Watch
Pfizer: Curing Its Own Ills
Pfizer's plan to cut costs by $4 billion got Wall Street's attention. But how much will it help the stock?
April 6, 2005
Pfizer (PFE) surprised Wall Street on Monday with its plan to cut costs by $4 billion through 2008. The announcement encouraged many analysts who have been worried about how the company will weather a coming wave of patent expirations and other challenges.
Pfizer did not go into specifics about where the cuts will come from. And how much the restructuring plan will help Pfizer's stock is unclear. Large pharmaceutical companies in general are going through a tough time, and long-term questions remain.
However, Morgan Stanley analyst Jami Rubin is optimistic. She upgraded the stock to "overweight" on Wednesday, saying a cost-cutting initiative has been just what the company has needed. She says the size and scope of Pfizer's plan exceeds her "'best-case' scenario."
Rubin says the restructuring plan will substantially improve earnings for 2006 and beyond. She slightly lowered her earnings per share estimate for 2005 but raised her 2006 and 2007 estimates to $2.20 and $2.43, respectively.
The cuts also reduce risk to revenues, in Rubin's view. But she's not sure the company will be able to achieve its "overly aggressive" projections, which incorporate a recovery in sales of COX-2 drugs (for pain relief) and strong new product launches.
Catherine Arnold and Marshall Gordon, who track the stock for Credit Suisse First Boston, also have concerns about Pfizer's ability to grow revenues. They say that even though the earnings outlook has improved, the company's new product launches won't be enough to produce more than "paltry" sales growth through 2009.
Shares, which have nudged up since Monday's close, trade at $27, or about 13 times the new 2005 consensus earnings estimate of $2.03 per share, according to Thomson First Call.
Rubin thinks shares can reach $32 over the next 12 months. But Arnold and Gordon say that a number of uncertainties will need to be resolved for shares to break out of the $25 to $28 range -- specifically, the prospects for Pfizer's COX-2 franchise and competitive and patent challenges for cholesterol drug Lipitor.
The stock yields 2.8%.
--Lisa Dixon
