Healthcare Business

The Bullish and Bearish Case for Pfizer in 2015

Last year was another great one for a bull market that is nearly six years old. The Dow Jones Industrial Average (DJIA) rose 7.5% and the S&P 500 Index rose 11.4% in 2014, at least without considering individual stock dividends. Pfizer Inc. (NYSE: PFE) managed to close out 2014 at $31.15, for a gain of 5.3%, if you include its dividend adjustment.

24/7 Wall St. has undertaken a bullish and bearish case to evaluate both sides of the coin and see what lies ahead for Pfizer in 2015. One key consideration for the year ahead is that the Big Pharma giant is not alone in its efforts to restructure. The Pfizer of 2016 or 2017 is likely to be night and day different from the Pfizer of 2005. Also, it is nearly impossible to do long-term valuation analysis on Pfizer without constant comparisons to Merck & Co. Inc. (NYSE: MRK).

The stock has a 2014 trading range of $27.51 to $33.12, and the consensus analyst price target of $34.45 would imply upside of 10.6% this year. Then there is the dividend yield of 3.5% to consider. Pfizer has a market cap near $205 billion, and the ongoing patent cliff continues to plague Pfizer and other drug giants. The Celebrex is the most recent drug under generic threat.

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Jefferies recently indicated that Pfizer could be a large acquirer of a company, particularly now that its tax-inversion strategy has backfired. As we have seen with many other DJIA leaders, Pfizer is among the top corporate spenders on research and development, which historically makes for solid long-term investing strategies.

Another solid development for Pfizer shareholders is that the most recent stock buyback plan was just too big to ignore. We called it a buyback on Viagra. Another issue to consider is that Pfizer was named among the defensive stocks that initially held up better than the market in the September market correction.

Pfizer may have not performed as well as Merck in 2014, but it does have a higher dividend yield of about 3.45%, versus almost 2.9% for its rival. Also, we have run the same bullish and bearish analysis for Merck in 2015 and beyond.

Another consideration in Pfizer’s bullish and bearish outlook is not just the consensus analyst price target of $34.45. The stock rose more than $1 in the first week of 2015 from the $31.15 close at the end of 2014. Pfizer’s lowest analyst price target is $29, and that implies a floor that is above the 52-week lows in valuation. The street-high analyst price target is all the way up at $41, which means the most bullish case from analysts implies upside of more than 30%, even without considering the dividend. It would be closer to 35% with the dividend.

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