A Global Biotechnology Company in its 164th Year

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to focus on a leading global biotechnology company in its 164th year: Pfizer Incorporated (NYSE: PFE).

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The Business:

Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, but also allows them to spot trends that may go unnoticed by unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. Pfizer is a global biotechnology company operating in five main segments: primary care, specialty care and oncology, established products and emerging markets, animal health and consumer healthcare, and nutrition. Based on market capitalization, the company is valued at $200.92 billion. The company’s strong business model and pricing power results in Pfizer possessing a profit margin of 41.91%.  

Strengths:

  • Steady Revenue Growth: In 2007, Pfizer reported revenue of $48.40 billion; in 2012, the company announced revenue of $58.98 billion, representing year over year annual growth of 4.03%, a trend that is expected to continue well into the future, with projections placing 2017 revenue around $68 billion
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  • Dividend: Presently, Pfizer pays out quarterly dividends of $0.24, which when annualized puts the dividend as yielding 3.52%
  • Diversified Product Portfolio: Pfizer’s consumer healthcare division includes brands such as Advil, Caltrate, Centrum, Chapstick, Robitussin, and Thermacare; the company’s nutrition segment includes brands such as Illuma, Progress Gold, Promil Gold, Promise Gold, S-26 Gold, and SMA Gold; the animal health division includes Convenia, Excenel, Fostera PCV, Imporvest, Revolution, and West-Nile Innovator; and the company’s biotechnology segment includes Prevnar, Lipitor, Celebrex, Sutent, Lyrica, Detrol, and Premarin; and this diversified product portfolio gives investors a greater level of predictability and security
  • Institutional Vote of Confidence: 68.05% of shares outstanding are held by institutional investors, displaying the confidence some of largest investors in the world have in the company and its future
  • Relatively Low Volatility: Currently, Pfizer holds a beta ratio of 0.72, representing a company trading with slightly less volatility than the overall market, a major upside for long-term investors

Weaknesses:

  • High Valuation: Presently, Pfizer carries a price earnings ratio of 21.66 and a price to sales ratio of 3.41, both of which indicate a company trading with a relatively high valuation
  • Net Debt: Despite possessing $4.50 billion in cash and cash equivalents on their balance sheets, the company’s debt load of $31.08 billion results in a net debt of $26.58 billion, a rather substantial weakness
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  • Negative Free Cash Flow: According to the company’s most recent quarterly filing, the company possesses a negative free cash flow position of $10.96 billion, a major weakness for investors
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Opportunities:

  • Acquisitions: In November 2012, Pfizer acquired NextWave Pharmaceuticals Incorporated, and further acquisitions could introduce trailblazing products and technologies to the company, which could fuel sales growth
  • Dividend Growth: Since implementing their dividend program in 1901, Pfizer has consistently raised their dividend payouts and is widely expected to continue to do so into the future
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  • R&D: In 2012, Pfizer poured over $9 billion into research and development, and any innovations or products stemming from this investment could provide opportunities to the company
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  • Pipeline: As of Feb. 28, 2012 the company possessed 90 total discovery projects in its pipeline, with 26 in phase 1 trials, 35 in phase 2, 18 in phase 3, and 11 in regulatory phases, filling the company’s future with potential opportunity and growth  

Threats:

  • Expiration of Patents: In March 2012, Pfizer’s patent for Viagra was originally scheduled to expire, but it was extended to April 2020.  However, other major patent expiration dates are rapidly approaching, and if Pfizer is not able to win a continuation of their patent rights, generics will be produced and destroy Pfizer’s pricing power
  • Legal Issues: The company is not a stranger to legal battles with users of its products, and while these lawsuits are usually on a small scale, any legal issues could cut into profits

Competitors:

Major publicly traded competitors of Pfizer include GlaxoSmithKline PLC (NYSE: GSK), Bristol-Myers Squibb Company (NYSE: BMY), Johnson & Johnson (NYSE: JNJ), and AstraZeneca PLC (NYSE: AZN). All of these companies operate in the same industries as Pfizer and compete directly with the company. GlaxoSmithKline is valued at $111.86 billion, pays out a dividend yielding 5.14%, and carries a price earnings ratio of 16.22. Bristol-Myers is valued at $60.38 billion, pays out a dividend yielding 3.83%, and carries a price earnings ratio of 31.72. Johnson & Johnson is valued at $211.06 billion, pays out a dividend yielding 3.20%, and carries a price earnings ratio of 19.67. AstraZeneca is valued at $56.94 billion, pays out a dividend yielding 6.13%, and carries a price earnings ratio of 9.16.

The Foolish Bottom Line:

Financially, Pfizer is relatively solid. The company possesses steady revenue growth, a diversified product portfolio, and a growing dividend. However, the company holds a negative free cash flow position and a rather substantial debt load. Looking forward, Pfizer has strategically planned for the future and possesses a strong product pipeline. All in all, while Pfizer may not present the highest rate of growth to investors, solid and stable returns should be seen by investors for decades to come.


makinmoney2424 has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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