Why Pfizer Is Formidable

Bulls Say

• Pfizer’s pipeline productivity is improving with several successful recent drug launches. In particular, cardiovascular drug Vyndaqel is a potential game-changer in the rare-disease arena.
• Pfizer's dividend yield is nearly 3%, and we expect steady cash flows to support the dividend.
• The divestment of the off-patent division should result in a faster-growing, innovative company.

Bears Say

• Past aggressive cost-cutting in research and development could hurt Pfizer’s long-term prospects, given the importance of continued investment in innovation.
• Merck’s pipeline pneumococcal vaccine could take share from Pfizer’s Prevnar 13 if Pfizer’s next-generation vaccine fails in late-stage studies.
• Several of Pfizer’s drugs in the late-stage pipeline are aimed at crowded markets and may see limited share gains, given their delayed entry.

Morningstar Analyst Damien Conover Says

Pfizer’s (PFE) foundation remains solid, based on strong cash flows generated from a basket of diverse drugs. The company’s large size confers significant competitive advantages in developing new drugs. This unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a wide economic moat around its business.

Pfizer’s size establishes one of the largest economies of scale in the pharmaceutical industry. In a business where drug development needs a lot of shots on goal to be successful, Pfizer has the financial resources and established research power to support the development of more new drugs. Also, after many years of struggling to bring out important new drugs, Pfizer is now launching several potential blockbusters in cancer, heart disease, and immunology.

Pfizer’s vast financial resources support a leading salesforce. The commitment to postapproval studies provides the company’s salespeople with an armamentarium of data for their marketing campaigns. Further, Pfizer’s leading salesforces in emerging countries position the company to benefit from the dramatically increasing wealth in nations such as Brazil, Russia, India, China, and Turkey.

Pfizer’s recent divestment of off-patent division Upjohn to create a new company, Viatris, in combination with Mylan should drive accelerating growth at the remaining innovative business at Pfizer. With limited patent losses and fewer older drugs, Pfizer is poised for steady growth.

Further, we believe Pfizer’s operations can withstand eventual generic competition; its diverse portfolio of drugs helps insulate the company from any one particular patent loss. Following the merger with Wyeth several years ago, Pfizer has a much stronger position in the vaccine industry with pneumococcal vaccine Prevnar. Vaccines tend to be more resistant to generic competition because of the manufacturing complexity and relatively lower prices.

Key Proprietary Morningstar Metrics

Fair Value Estimate: $45.50
Star Rating: 2 Stars
Economic Moat Rating: Wide
Moat Trend Rating: Stable

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