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Pfizer (NYSE: PFE) stock gained ground in the market yesterday after releasing an earnings report that exceeded analyst expectations.
The world’s leading research-based pharmaceutical company posted 62 cents of earnings per share on $17.2 billion in third-quarter revenue. That’s better than analyst predictions of 56 cents per share on $16.4 billion in revenue. As a result of its favorable earnings report and improved sales in several key areas, Pfizer boosted its financial targets for 2011 and widened its planned share repurchase program.
News of its better-than-expected earnings drove Pfizer’s stock up more than 1 percent in early trading today.
Lipitor, a heart drug that accounts for about 15 percent of Pfizer’s sales, was the main catalyst behind Pfizer’s strong third-quarter earnings. Sales of Lipitor rose 3 percent, to $2.6 billion, in the third quarter.
That’s likely to change in the fourth quarter, however. Its patent protection on Lipitor in the U.S. expires on November 30, and cheaper versions of the drug are expected to hit the market shortly thereafter. The patent will soon expire in other countries as well. That’s likely to erode some of Pfizer’s booming Lipitor business, at least in the short term.
Pfizer president and CEO Ian Read insists that the company is ready for the inevitable competition once its Lipitor exclusivity expires.
“We are well prepared as the November 30 date in the U.S. approaches,” Read said in a conference call early Tuesday.
Despite Pfizer’s strong third-quarter earnings, some analysts are wary of the impact new Lipitor competition will have on the company. Equities research analysts at Standpoint Research downgraded Pfizer from a “buy” to a “hold” after Tuesday’s earnings announcement. Analysts at Morgan Stanley maintained an “overweight” rating for Pfizer.
MKM Partners, however, lists Pfizer as a “buy,” setting a price target of $20.50. The stock was trading in the $19.50 range in after-hours trading on Tuesday.
Perhaps MKM is encouraged by Pfizer’s sales outlook in areas other than Lipitor. The company reported sales increase in products such as Prevnar, Enbrel, Celebrex and Viagra in the third quarter. Both Prevnar and Enbrel brought in close to $1 billion in earnings for Pfizer. In addition, the company gained a stronger foothold in emerging markets, with revenue increasing 18 percent year over year in these markets.
Though the Lipitor patent expiration looms over the company like a bit of a dark cloud, Read said he was “pleased” with Pfizer’s third-quarter performance, noting that “all of our businesses generated revenue growth.”
Still, given the company’s fourth-quarter uncertainty, particularly after November 30, it would be wise for investors interested in buying Pfizer stock to take a wait-and-see approach. If Pfizer’s Lipitor sales remain strong once the heart pill gets a little competition, then the company's fourth-quarter earnings may exceed analyst expectations much like its third-quarter earnings did.