Today's news item from PFE Research's hometown paper: New London Day.
BigKNY3
_______________________________________________
Pfizer shares may split 3-for-1
Shareholders to vote in N.Y. on Thursday
By KAREN KAPLAN
Day Staff Writer
Many shareholders of Pfizer Inc. are eagerly looking forward to Thursday's vote on the stock's proposed three-for-one split, but they should remember that the move — if approved —will not change the stock's underlying value, market experts say.
If shareholders OK the split at Pfizer's annual meeting at 10 a.m. Thursday at the Grand Hyatt Hotel Ballroom in New York, Pfizer's board of directors will then vote, almost certainly in favor of the plan. The split would bring the price per share of Pfizer stock — which closed Friday at $126.94 – to about $42. On Thursday, after a company earnings report hinted at a comparatively weaker second quarter and said the company plans to spend $2.8 billion this year on research and development, Pfizer's stock price slid by more than 10 percent to $130 a share at closing. Its year-to-date high is $150.13.
This will be Pfizer's fifth stock split — and its first three-for-one — in 15 years. In July '97, less than two years ago, the stock split two-for-one. In July '95, it split two-for-one, and in April '91 and in July '83 it also split two-for-one.
No change in overall value
Compared to $129 or $130, $43 a share may sound good, but analysts and others warn that nothing in the new York-based pharmaceutical titan's financial picture will change with the split. If an investor bought 100 shares of the stock before the split, their investment would remain at the same value after the split, at least initially.
"If you have a $20 dollar bill, you now have two tens," said Bob Kirby, an analyst with Edward Jones in St. Louis. "It's that simple. It's not a creation of wealth. It's dividing the pie into smaller pieces and the size of the pie remains the same."
Still, a Pfizer shareholder would have $18 million today if she or he had purchased 100 shares in 1945, according to David Saks, an analyst with Gruntal & Co. in New York. A stock's price helps to quantify a company's value, and when the price accelerates, after a split or otherwise, a shareholder's investment also gains value.
Stock splits usually signify that the company's performance has been excellent, and that the company expects the trend to continue, analysts say.
"The price rising so much reflects good things happening (with Pfizer) fundamentally or internally," says Saks. "To Joe Public, (the split) is a reflection of the stock's success and implies that the momentum of the post-split carries, and that there could be another split. It's a signal, a flag, an event that brings attention, and the shareholder is given notice that the stock has done well."
Barney Rosen of Argus Research in New York
also says a split is a good sign to investors.
"They'll have more shares," he says. "Fundamentally, stock splits aren't supposed to affect the valuation of a company, (but) oftentimes they suggest prospects for the company are good. Sometimes (companies) get strength from a stock split, where the price starts to climb again after the split."
Companies, especially pharmaceuticals, also like to split their shares because it looks to shareholders as if they are receiving a reward. Moreover, at a lower price, shares seem more accessible, analysts say.
"Many companies like to have their stock in a range, and pharms like to have theirs below 100 (per share)," Rosen says.. "It makes the stock more attractive for potential investors."
Robert Padgett, a Pfizer spokesman, says. that enticing investors is the very reason the company's directors proposed the split in the first place.
"We want to make the stock available," he says. "By splitting it this time three-for one, if they vote for it, it does make it more affordable and easier for people to buy the stock. We want to make this more attractive to the small investor. And where the stock has been lately, the split would make it more advantageous than a two-for-one at this point."
The split was proposed in January. Padgett says that if both shareholders and company directors vote in favor of the split at Thursday's meeting, the effective date of the split and the date at which shareholders of record are eligible for it will be announced at that time.
A split looks good and lowers the price of a share by a good portion, from a third to half or two-thirds its original cost, depending on the ratio. But investors need to make sure they are looking to buy a stock for reasons more significant and important than whether the stock is splitting, analysts say.
Saks, of Gruntal, predicts a 20 percent growth annually for Pfizer, whose research headquarters are in Groton.
"An investor's money will double in four years, I'm thinking even sooner," he says. "It'll split again… Others are worried about value, about price-to-earnings (ratio). I say it's growth, and earnings. And that's why Pfizer's my number-one."
"A split does not create value, it just looks better," says Kirby, of Edward Jones. "Even though a split appears to be an interesting topic, (investors) need to focus on the company's ability to grow its business profitably and return a competitive return to shareholders. The split just happened to be a byproduct of a rising price, not the reason to invest."
"A split increases the number of shares outstanding, but … these reasons are superficial," says Kieran Kilbride, A.G. Edwards vice president and head of the company's Mystic office. "Pfizer is the fourth-largest researched-based pharmaceutical (in the U.S.) and its earnings growth projections are very good. The pipeline is very, very strong. These are very important reasons why people would be buying into this company. It's not just hype, and that's important."
newlondonday.com
|
