Pfizer Inc. - Good Buy in Pharmaceutical

Pfizer Inc. - Good Buy in Pharmaceutical Stock?

Pfizer Inc., is a giant in the Pharmaceutical Sector. It is traded on the New York Stock Exchange under ticker symbol PFE. Its principle activities include the research and manufacturing of prescription medicines for human and veterinary applications on a global scale. Their products carry such familiar names as Zoloft, Lipitor, Norvasc, Zithromax, Zyrtec, and the household name, Viagra. They also have a line of consumer products such as confectionery products, shaving products, and tetra fish products (www.bigcharts.com,2003). Pharmaceuticals account for the largest portion of their revenues, averaging 84%, while consumer products make up the remainder of their income stream.

Pfizer stock has been on a downtrend since mid year 2001. This came after a boom in the biotechnology sector, a sector closely related to the pharmaceutical sector. The key question that an investor must answer is whether this means that Pfizer is a good buy at such a low price, or is it better left alone for fear that it will fall further. The only real way to answer this question is to look at their overall financial health, compare these ratios to the averages for the sector in which it operates, and finally to the market as a whole. This report will examine these factors in order to determine the best action for an investor considering Pfizer, Inc.

First, let us examine the profitability ratios. For the past year, Pfizer's gross margin, operating margin and profit margin have shown a tremendous growth. Pfizer's gross margin was up 85.24% as compared to the same period last year (Pfizer, Inc., 2003b). Operating margin and profit margin have grown 35.67% and 30.60% respectively (Pfizer, Inc., 2003b). Management effectiveness has shown considerable health as well. Pfizer managed to receive a 52.13% Return on Equity from the period December 2001-2002 (Pfizer, Inc., 2003b). They receive a 24.43% Return on their assets (Pfizer, Inc., 2003b). These numbers reflect that a shareholder is getting a good value for their investment. Management has shown the ability to realize a considerable return on shareholder's investments. In addition, Pfizer investors receive a dividend yield that has been on the rise since 1999 and is currently averaging 0.60 per share over the year (Pfizer, Inc., 2003a).

Pfizer Inc. relies on operating capital and short-term borrowing to meet its needs. An examination of Annual Reports from 1997 to 2002 reveals that they consistently have sufficient capital to meet their obligations. They have an outstanding credit rating with the banking institutions with which they do business (Pfizer, Inc., 2003a). Pfizer has consistently kept sufficient cash balance on hand to meet its needs.

The price/earning ratio over the past five years has been erratic. This ratio has been effected by several factors. First, Pfizer Inc. merged with Warner-Lambert (Pfizer, Inc., 2003a). There were many costs associated with this merger, but as expected the costs had a tangible benefit in the years following the restructuring and provide additional revenue streams from well-established Warner-Lambert products. As they operate in foreign market, there was also a negative impact produced by foreign currency exchange risks (Pfizer, Inc., 2003a). They currently have multiple income streams to mitigate any risks associated with one particular factor, or sector.

Pfizer is subject to several risks associated with the industry in general. Changes in the health care environment, litigation costs, competition, legislative changes, changes in Medicare and Medicaid payments and foreign exchange rates all have the potential to effect the profitability of company in the future (Pfizer, Inc., 2003a). The Warner-Lambert merger caused Pfizer to make several accounting changes (Pfizer, Inc., 2003a). Pfizer is subject to many risks. However, it has formal risk management strategies with a proven track record in mitigating risks in the past. Pfizer has multiple income streams to cushion against the loss of one income stream, such as the loss of licenses from the FDA, as happened when their product Rezulin was pulled from the market (Pfizer, Inc., 2003a). In addition, Pfizer is constantly conducting research and development to bring more products to market.

Pfizer's performance has been on par with other stocks in the industry and with the Dow Jones as a whole. The pharmaceutical industry is highly competitive. This competition poses many significant risks that could effect one or all of the companies working within the sector. All of Pfizer's competitors are subject to those same risks as itself. Pfizer has a proven track record for effectively managing those risks, so that they have minimum impact on the over all financial health of the company.