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What’s the Outlook for Pfizer?

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Analysts estimates

The strong performance Pfizer’s (PFE) innovative products and the inclusion of the Hospira business have driven the company’s 2Q16 earnings, surpassing analysts’ estimates for revenues and EPS (earnings per share). Pfizer reported EPS of $0.64 on revenues of $13.2 billion in 2Q16, against the estimated EPS of $0.62 on revenues of $13.0 billion.

Due to the acquisition of Anacor Pharmaceuticals and Medivation (MDVN), analysts estimate EPS of $0.62 on revenues of $13.1 billion in 3Q16, and $0.54 on revenues of $13.7 billion in 4Q16.

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Annual estimates

Pfizer reported EPS of ~$2.20 for 2015, surpassing Wall Street analysts’ estimate of ~$2.19. Analysts estimate EPS of ~$2.45 for 2016, and an increase in EPS to ~$2.65 for 2017. Revenues are estimated to increase to $52.8 billion in 2016 and $54.88 in 2017, due to the inclusion of Anacor, Medivation, and Hospira products and the growth of revenues from oncology and alliances.

Although the company’s gross margin is expected to decrease from 80.2% in 2015 to 78.6% in 2016, it is projected to improve to 79.3% in 2017. The decrease in 2016 is due to the higher cost of sales for legacy Hospira products. The EBITDA (earnings before interest, tax, depreciation, and amortization) profit is expected to increase to $21.6 billion in 2016 from $20.7 billion in 2015, and further to $23.5 billion in 2017. The wider operating margin is due to an operational decrease in research and development expenses (or R&D) as a result of lower clinical spending on Prevnar 13, Trumenba, and other drugs.

To divest risk, investors could consider ETFs such as the iShares Core High Dividend ETF (HDV), which holds ~5.5% of its total assets in Pfizer, ~7.0% in Johnson & Johnson (JNJ), and ~4.3% in Merck and Co. (MRK).

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