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Biotech / Medical : PFE (Pfizer) How high will it go? -- Ignore unavailable to you. Want to Upgrade?

To: BigKNY3 who wrote (6765)	1/21/1999 7:44:00 AM
From: BigKNY3	Read Replies (2) \| Respond to of 9523

WEEKDAY TRADER: Drug Stocks -2: U.S. Sector 'Sound' 01/20/99 Dow Jones News Service Of course, these stocks still have plenty of fans, and some of them continue to deliver the earnings they promise - and then some. On Tuesday, Pfizer announced surprisingly good fourth-quarter results, thanks in part to overseas sales of its impotence drug, Viagra . And yet, concerns about the sector linger, especially over valuations. At Wednesday's closing price of 148 7/8, Merck traded at 30x consensus 1999 earnings, according to First Call Corp., compared with projected earnings growth of around 14% for 1999 and the next five yearsand a P/E ratio of 26.4x projected 1999 earnings for the S&P 500. Eli Lilly changed hands at 35.6x 1999 earnings, compared with an estimated growth rate of 20%. Warner Lambert's multiple was 33.7x, well above its long-term growth rate of 23%. And surging Pfizer's was 48.5x 1999 earnings, more than double its 1999 earnings growth rate of 23.5%, according to First Call. Stefan Loren, a Legg Mason pharmaceutical analyst, predicts those multiples will compress somewhat by the end of the year (though he still considers the group attractive). "I think that it has a lot do with people putting their money in more stable vehicles," he says of the sector's popularity in 1998. Jerome Brimeyer, who heads the health care analyst group at Warburg Dillon Read, believes the U.S. pharmaceutical industry is fundamentally sound, with double-digit volume growth and drug-price increases last year averaging 3%. Yet, he says, "the major U.S. [drug] stocks look very pricey," which is why he has no Strong Buy ratings on the stocks. Michael A. Kagan, lead portfolio manager of the $1.8 billion closed-end Salomon Brothers Fund, is also cautious. "Last year these stocks did very well because people were afraid and playing defense," says Kagan, who describes his investing style as "growth at a reasonable price." But now, as the economy clearly improves, he senses that more investors "are beginning to play more offense than defense and looking for faster-growing companies." Hence, the surge in technology stocks. In November, Kagan closed out the fund's 350,000-share position in Warner Lambert, and earlier this month, he unloaded 350,000 shares of Johnson & Johnson (JNJ). Paul A. Brooke of Morgan Stanley Dean Witter says it's not valuations that concern him. "The critical variable is sustainable growth rates," which will peak in the next year, he predicts. In his 1999 forecast, Brooke rated the group only a Market Performer. "Growth rate forecasts are the real Y2K issue, in our opinion," he wrote. He believes the companies' growth rates, typically above 15%, are peaking and that more modest increases are on the horizon. Among his concerns are where the next breakthrough drugs - the ones that drive sales and P/E multiples - will come from.