Stock Watch
Wyeth: Booster Shot
This major pharmaceutical company said on Monday that earnings for 2005 would be better than expected.
June 28, 2005
Shares of pharmaceutical giant Wyeth (WYE) got a shot in the arm after the company said on Monday that earnings for 2005 should be better than expected. The stock rose more than 4% on Tuesday.
The company said in a statement that high-single-digit revenue growth contributed to the brighter forecast, along with lower taxes and lower expense growth.
The new outlook wasn't entirely a surprise to analysts, although Mara Goldstein, an analyst at CIBC World Markets, says it did come earlier than anticipated. "The timing of this guidance is bullish," she says. "In our view, this suggests a high level of comfort with the current state of the business, as well as optimism on prospects for continued growth."
Wyeth pleased analysts earlier this year as well when it raised its guidance for the first quarter.
In response to Monday's news, Goldstein raised her 2005 earnings forecast by 6 cents, to $2.88, which is at the high end of the company's new forecast. She also raised her 2006 estimate by 4 cents, to $3.09.
Wyeth makes a range of pharmaceuticals, with a special focus on medications for women. Among its over-the-counter products are Advil, Dimetapp and Robitussin.
The company was also the maker of diet drugs that have now been taken off the market. Litigation over these drugs and other challenges have weighed on the company's shares in recent years, Goldstein says. But she says that "Wyeth's story is getting better." Among other things, she likes the company's pipeline. So does T. Rowe Price Health Sciences manager Kris Jenner.
Standard & Poor's analyst H.B. Saftlas says Wyeth's pipeline "is among the stronger ones in the industry," with several drugs in late-stage development. However, he still worries about future diet drug liabilities and rates the stock a "hold."
Wyeth made headlines last week, with The Wall Street Journal reporting that the company could be planning a restructuring program, including cutting back its sales force. Merrill Lynch analyst David Risinger points out that the new forecast does not include possible savings from this plan. "If the company can hold back expense growth in the future," he says, earnings could go even higher.
Shares, at $45, trade at about 16 times the new 2005 consensus earnings estimate of $2.86 per share, according to Thomson First Call. The stock yields 2.1%.
--Lisa Dixon
