Pfizer Stock Buyback Plan Just Too Large to Ignore -- It Is on Viagra

A Pfizer Inc. (NYSE: PFE) press release on Thursday evening was honestly given the wrong title by the company’s investor relations department. The new release titled “Pfizer Declares 26-Cent Fourth-Quarter 2014 Dividend” should have been named “Pfizer Unveils New $11 Billion Share Repurchase Program.”

24/7 Wall St. wanted to go over this buyback in detail. The long and short of the matter is that this buyback is simply too large and too significant to ignore. This is a buyback plan that might jokingly be called “being on Viagra.”

The $0.26 dividend was the same dividend as before, even if it was the 304th consecutive dividend paid out. The $11 billion that the company’s board of directors approved for share repurchases is listed as being a plan to be utilized over time. It is also in addition to the $1.3 billion authorization remaining under the company’s current share repurchase program.

So, how exactly does $12.3 billion compare ahead to Pfizer today? Pfizer’s market cap is listed as roughly $181 billion. Back on July 29, Pfizer said in its earnings release:

Given our strong operating cash flow, we continue to expect to repurchase approximately $5 billion of our shares this year, with $2.9 billion repurchased through July 28.

ALSO READ: The 10 Safest High-Yield Dividends

Also on July 29, Pfizer said:

The diluted weighted-average shares outstanding declined by 673 million shares, due to the company’s ongoing share repurchase program and the impact of the Zoetis exchange offer, which was completed on June 24, 2013.

What really matters is that Pfizer’s share price is close to $28 after the buyback announcement, but that compares to a 52-week range of $27.51 to $32.96. Unlike many other companies, Pfizer’s announcement is happening close to its 52-week low.

Another issue to consider is that Pfizer shares simply have been unable to get and stay handily above the $30 line. Pfizer’s 50-day moving average is up at $29.21, and its longer-term 200-day moving average is $29.86. Pfizer shares also spent time bottoming out around $27.75 to $28 in early August and in the most recent sell-off in October.

Another issue to consider is Pfizer’s short interest. This seems high at 59.9 million shares, but the short interest has dropped four reports in a row, and it is now getting back to a baseline short interest that has been in place most of the last year.

Another consideration is that Pfizer has about 50% of its shares owned by institutions. That leaves a rather large percentage of shares owned by individual investors. For a comparison, Merck is listed as having some 76% of its shares owned by institutional investors.

ALSO READ: The 20 Most Profitable Companies in the World

One last consideration is Pfizer’s cash and liquidity. This is a large sum, and we are not going to say for sure that this will prevent Pfizer from looking at other acquisitions. We do not have a breakdown of how much of this cash and investments is kept overseas or how much would be subject to repatriation penalties. Still, Pfizer’s June 2014 balance sheet showed $3.4 billion in cash, another $30.65 billion in short-term investments and another $17.17 billion in long-term investments. Add all that up and you have total liquidity of more than $51 billion.

Pfizer can afford this buyback. It can also afford to keep its eyes open for selective acquisitions, although it might want to look elsewhere besides in overly dominant tax inversions.