The strong performance of innovative products and inclusion of the Hospira business drove Pfizer’s (PFE) 1Q16 earnings, which surpassed analysts’ estimates for revenue and EPS (earnings per share).
Pfizer reported EPS of $0.67 on revenue of $13.0 billion in 1Q16 against the estimated $0.56 on revenue of $12.1 billion in 1Q16. Further, analysts estimate EPS will be $0.60 in 2Q16, $0.62 in 3Q16, and $0.54 in 4Q16.
Pfizer reported EPS of ~$2.20 in 2015, surpassing Wall Street analysts’ estimate of ~$2.19. Analysts estimate EPS will be ~$2.35 in 2016 and ~$2.56 in 2017. Revenue is estimated to increase to $51.65 billion in 2016 and $53.58 in 2017, due to the inclusion of Hospira products and the growth of revenue from oncology and alliances.
Pfizer’s gross margin is expected to decrease from 80.2% in 2015 to 78.6% in 2016 but is projected to improve to 79.1% in 2017. The decrease in 2016 is due to the higher cost of sales for legacy Hospira products. The EBITDA profit is expected to increase from $20.7 billion in 2015 to $20.9 billion in 2016 and further to $22.6 billion in 2017. The increase in operating margin is due to an operational decrease in R&D (research and development) expenses as a result of lower clinical expenses for Prevnar 13, Trumenba, and other drugs.
Pfizer’s stock has risen nearly 1.6% in the last 12 months, and analysts estimate the stock has potential to rise 12.8%. Analysts’ recommendations show a 12-month target price of $38.03 per share as compared to $33.70 per share on May 4, 2016. Also, 64% of analysts have given Pfizer a “buy” recommendation, while ~36% of analysts have given the stock a “hold” recommendation, according to a Bloomberg survey. Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.
To diversify risk, you can invest in the VanEck Vectors Pharmaceutical ETF (PPH), which holds ~5.2% of its total assets in Pfizer, ~5.0% in Novartis AG (NVS), ~5.3% in Johnson & Johnson (JNJ), ~5.1% in Novo Nordisk (NVO), and ~5.3% in Merck and Company. (MRK). Investors can also consider ETFs like the iShares Russell Top 200 Value ETF (IWX), which holds ~2.9% of its total assets in Pfizer.
In the last part of this series, we’ll look at Pfizer’s valuation.