The strong performance of innovative products and the inclusion of the Hospira business have driven Pfizer’s (PFE) 2016 earnings. However, Pfizer missed analysts’ estimates for revenues and estimates for earnings per share (or EPS).
Pfizer reported EPS of ~$2.40 for 2016, meeting Wall Street analysts estimates. Analysts estimate EPS of ~$2.56 for 2017 and ~$2.79 for 2018. The revenues are estimated to increase to $53.3 billion for 2017, while revenues are further estimated to increase to $54.61 for 2018 due to the inclusion of Anacor, Medivation, Hospira, and the growth of revenues from oncology and alliances.
Pfizer reported EPS of $0.47 on revenues of $13.6 billion in 4Q16 against the estimated $0.50 on revenues of $13.6 billion. Further, analysts estimate EPS of $0.67 at revenues of $13.2 billion for 1Q17 and EPS of $0.67 at revenues of $13.2 billion for 2Q17.
The gross margin is expected to increase to 79.5% in 2017 and further expected to improve to 79.6% in 2018. The increase in 2017 is expected due to the lower cost of sales and the impact of the divestment of Hospira’s global infusion business. The EBITDA margin is expected to increase to 43.4% for 2017 and 44.5% for 2018. The increase in EBITDA margin is due to an operational decrease in research and development expenses as a result of lower clinical spends for Prevnar 13, Trumenba, and other drugs.
Pfizer stock has risen ~14.3% in the last 12 months, and analysts estimate the stock has the potential to return ~11.0%. Wall Street analyst recommendations have a 12-month target price of $38.11 per share as compared to the last price of $34.33 per share as of March 29, 2017.
50% of analysts recommend a “buy,” while ~50% of analysts recommend a “hold” for Pfizer stock. Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.
To divest the risk, investors can consider ETFs like the iShares US Healthcare ETF (IYH), which holds ~6.8% of its total assets in Pfizer, ~3.2% in Allergan (AGN), ~3.0% in Gilead (GILD), and 3.6% in Medtronic (MDT).