News Analysis from Argus:
Pounded. That's the best way to describe the 12% intraday decline in the BUY-rated shares of Pfizer (NYSE: PFE) after the company reported first-quarter earnings of $0.62, and then warned that second quarter earnings growth could be in the single-digit range. The culprit was Viagra, whose robust sales after the launch in the second quarter of 1998 will make revenue growth and earnings comparisons more difficult in the second quarter.
What has changed at Pfizer? Nothing besides the stock price. The company met our earnings expectations from continuing operations, indicating growth of 27% over 1998's posting of $0.49. Pharmaceutical revenue growth was a robust 33%, led by Norvasc, Zithromax, Zoloft, and Lipitor, which Pfizer co-promotes with Warner-Lambert.
Domestic pharmaceutical sales reached $2.34 billion, led by volume gains (28%) and minimal pricing (1%), increased 35% while international sales grew 25% to $1.3 billion. Currency translation effects (though slightly positive) were essentially negligible at 0.3%.
Bottom-line growth was impacted by significant spending on selling and promotional as well as R&D. But these trends are not new for Pfizer, and they will continue as the company prepares to do battle with Merck on the COX-2 front and bring new products (such as Tikosyn, a novel treatment for a-fib) to the marketplace.
We have adjusted our earnings model to incorporate management's new earnings guidance. For 1999, our EPS forecast is $2.44 down from $2.46, and our second quarter estimate is now $0.50. Our 2000 estimate remains unchanged at $3.03, although we do expect to tweak this forecast in the coming days. Our price objective also remains $140.
What should our investors do? The current pricing environment has created a buying opportunity and we continue to recommend purchase of the PFE shares. We also anticipate the Board of Directors will vote in favor of a 3-for-1 stock split at the company's annual meeting on April 22, which could provide additional upside strength. While we had considered downgrading the PFE shares after they passed through our price target in recent weeks, we held off
because we anticipated an upside earnings surprise as well as continued momentum from the strength of Celebrex prescription data. While the upside failed to materialize, the company's fundamentals remain solid. |
