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Pfizer, Merck Below Expectations but Well Positioned

The two pharmaceutical giants are trading down due to the short-term miss, but their pipelines and pricing power look good.

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Damien Conover: Big pharma earnings are coming to an end for the first-quarter results, and Pfizer and Merck reported today. Both results came in a little bit below both what we, and the Street consensus were anticipating. There were some stocking issues and some generic threats that caused some of the top line to come in a little bit below what we were anticipating. Nevertheless, we think both companies are very well-positioned going forward, and we think both stocks are undervalued. While the stocks are trading down right now because of the short-term miss, we think over the long-term are very well-positioned with their pipelines and very strong pricing power with a lot of the drugs, which was evidenced in the quarterly earnings today.

Beyond what we see as strong capital appreciation for these names, we also see a very strong dividend yield, above 3% for both stocks. The earnings today reaffirm our belief that despite some of the generic competition and some of the headwinds in the industry, both firms will be able to support a very strong dividend yield. Beyond the dividend yield we anticipate there will also be strong capital appreciation.

Damien Conover does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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