A review of PFE by Tom Gardner on AOL's Motley Fool:
Have PFun!
BigKNY3
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Here's a look at Pfizer's first two quarters of this year versus the same period last year:
#1. Rising Sales
I favor companies that are growing sales at an annualized rate of 15%. Here are the six-month performance comparisons:
(in billions)
6-mo. 6-mo.
1997 1998
$5.86 $6.97
That marks growth of 18.9%, ahead of the ideal. Bravo.
#2. Rising Gross Margins
Gross margins at Pfizer are on the rise, and have been for a number of years. And the six-month comparisons are. . .
6-mo. 6-mo.
1997 1998
82.1% 83.8%
That marks a rate of growth of 2.1%, which fits it in our "Neutral" category.
#3. Rising Net Margins
Ah, yes, margins keep heading higher. The six-month comparisons show that Pfizer's net margins have grown at the rate of 5.6%.
6-mo. 6-mo.
1997 1998
17.9% 18.9%
Any growth rate above 5% ranks it with the elites. Ideal!
#4. Share Buybacks
Pfizer has been holding the line on its fully-diluted shares, showing little creep over the six-month period -- with just 7 million additional shares of ownership.
6-mo. 6-mo.
1997 1998
1,310 1,317
(in millions)
And that marks 0.5% growth over the period, which ranks Pfizer in the "Neutral" category on share buybacks.
Tweeeeet!
Halftime
We just raced a lot of numbers by you, so let's walk out an overview of the first half. (Is Brent Musburger out there?)
Through the first six months of 1998, Pfizer has done a fine job of inching its business into greater profitability. The launch of Viagra helped fuel sales growth of 18.9%, with gross and net margins following suit. A very strong suit, indeed.
In yesterday's performance, Nine West shined on the income statement, but lost its footing on the balance sheet. What opf our pfair pfarmaceutical Pfizer?
#5. Cash Outgrowing Debt
The company's cash-to-debt comparisons have weakened over the past year. Six months ago, the company had $200 million more in cash than it does today. Long-term debt has essentially held steady over that time. And so, the ratio has weakened.
Cash-to-Debt Ratio
6-mo. 6-mo.
1997 1998
3.01x 2.76x
Let's call this a mild negative.
#6. Lowering Flow Ratio
The Flow Ratio measures the rapidity with which a company can turn inventory into collected bills, while holding off payments to its suppliers. In essence, how quickly can Hershey's turn cocoa, milk, and sugar into a sold candy bar -- and how long can Hershey's hold off payments for the cocoa, milk, and sugar. As always, if this logic is lost on you, check our Flow Ratio Explanation.
Over the past six months, here's the direction of Pfizer's Flow Ratio:
6-mo. 6-mo.
1997 1998
0.80 1.01
This is a distinct negative for Pfizer. The rising Flow Ratio is entirely the consequence of a 23% growth in the level of accounts receivable. It's a bad sign whenever accounts receivable outgrow the rate of sales -- which is the case here. This is an indication that, to get product out to the public, Pfizer has lightened up on its collections. That's behavior which can fuel short-term sales growth and margin expansion, but compromises the merit of the growth.
This is not a serious negative for Pfizer, as their Flow Ratio is still well below our 1.25 boundary line. That said, the direction is worrisome.
#7. Expanding Possibilities
Without a doubt, Pfizer has excellent worldwide-expansion opportunities -- with new drugs in the pipeline and promotable products today. For example, to date, over 99% of Viagra's sales have been in the U.S. With most foreign markets embracing the drug, there are enormous opportunities.
Conclusion
Pfizer is growing like a weed. Pfizer has a brand that is becoming ever more popular. Pfizer's business is strong. Pfizer's stock has been the second most rewarding in the Cash-King portfolio. Pfizer meets all of our many baseline Cash-King criteria.
That said, there are some notable developments on the balance sheet that we need to keep our eyes on. The pace of growth in accounts receivable is something Pfizer investors need to keep their eyes on.
Have a great weekend, Fools.
Tom Gardner |
