Pfizer (PFE) is an interesting stock to follow. Apart from being a great dividend stock, the company also boasts of a diversified portfolio, strong free cash flow, and consistency in beating earnings expectations. Let’s quickly take a look at the pros and cons.
Tailwinds
Pfizer is undoubtedly one of the best dividend stocks, thanks to its strong cash reserves. For the company, dividends have always taken a top priority in the capital allocation program. Apart from the 3.8% dividend yield, what makes the company a safe drug stock is the strong performance of its new drugs.
Most of the drugs in Pfizer’s portfolio hold a significant market share. For instance, breast cancer treatment Ibrance has consistently maintained a positive momentum. Last year, the drug recorded sales growth of up to 46% with revenues of $3.12 billion. Despite its rivals Eli Lilly (LLY) and Novartis (NVS) introducing similar drugs last year, they have been unable to dent Ibrance’s market demand.
Apart from this, Pfizer is also a top player in the blood thinner market, thanks to Eliquis, which posted 47% sales growth last year. The drug has been knocking down the widespread use of Warfarin, an oral anticoagulant. The solid performance of both these best-selling drugs is expected to continue throughout this year as well.
Apart from the 3.8% dividend yield, what makes the company a safe drug stock is the strong performance of its new drugs.
The company’s strong portfolio and product pipeline is mostly due to acquisitions and licensing deals. It relies on M&A activity for growth and has made deals with numerous big pharma companies including Merck (MRK), Bristol-Myers Squibb Company (BMY), and GlaxoSmithKline (GSK).
Meanwhile, like its rivals, Pfizer is not immune to patent losses. Its blockbuster Viagra, which lost exclusivity in the US in December 2017, is losing market to other competitors and witnessing a drastic drop in revenue. However, Pfizer has so far been able to offset this weakness with strong sales of new drugs. In fact, this year the company expects to deliver revenue of about $53.5 billion to $55.5 billion, higher than that of 2017.
Apart from the new drugs, the company is also benefiting from biosimilars. Pfizer currently markets two biosimilar products, which have delivered 66% growth in revenue in 2017. The company also has a strong pipeline with approval pending for nearly 30 drugs. A few blockbuster drugs are late-stage candidates.
Headwinds
Pfizer’s plans to jettison its lackluster consumer health unit went sour after all the potential buyers dropped out of the bidding process. The company was planning to raise $20 billion through the sale, but the buyers found the deal overvalued. So for now, Pfizer will probably have to hang on with this unit for a little while longer.
The impact of the loss of its blockbuster drugs would take a few more years to diminish. It also faces challenges due to the short supply of life-saving drug made by Hospira, which was acquired by Pfizer. Apart from this, there is the common factor that haunts all pharma companies – pricing pressure and increased competition.
Though challenges galore, Pfizer is currently in a position to see positive growth this year. Dividend is only an add-on.