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ML upgrade re: PFE Here's an excerpt: < Pfizer Inc.
Defensive
;
large potential upside
;
4% yield
;
and a parachute
-
-
Adding PFE to US 1
Reiterate Rating
:
BUY
| PO:
39.00 USD
| Price:
28.56 USD
Equity |
09 February 2016
A
therapeutic stock
that
won’t keep you up at night
We are
adding PFE to the US 1
list
, now our new top pick for 2016,
and
are
reiterating
our
Buy rating and $39 PO
.
We view PFE as an attractive stand-alone entity,
based on
a
compelling
valuation (11x 2017EPS), low pipeline expectations
(lowest pipeline
contribution in
the
group
–
by our estimates and consensus)
and significant balance
sheet strength ($
36bn
in cash and equivalents at end
-
4Q15). Based on our conservative
assumptions
(see inside)
, the
PFE-AGN
deal
adds
~$4
/share NPV
and
is
~17%
accretive
in 2019
(we expect deal close in 3Q16)
. We see high potential for PFE to vastly exceed
these estimates through large
-
scale buy
-
backs, facilitated by the strong balance sheet
and huge cash flow generation of the pro
forma entity.
PFE’s current trading range
rep
resents a highly attractive entry point,
in our view, given we see 37
% upside based
on our stand
-
alone value
, and ~51
% based on
the
pro-forma valuation. Furthermore, we
estimate merger-arb-driven
short selling
is responsible for ~$3
-
$5 of technical pressure
on the stock
(see inside)
,
which provides some downside protection in the event of a
deal break, which is a welcome facet of the thesis,
given the current market backdrop.
Why now
–
stock
at or near its floor and deal close in ~3Q
PFE
has
declined
~25
%
since
the
deal
speculation
was
published
in the WSJ on 10/28/
15
,
due to a combination of
,
1) technical pressure from merger
-
arb investors, 2) a sector
rotation out of healthcare (
especially therapeutics) and
broader market macro pressures
,
and 3) short
-
term orientated investors viewing PFE
as stagnant given the arb
dynamics
.
However, PFE is now at or near its floor value,
in our view, with a 2017 EPS multiple of
11.3x (second-lowest in the group and at a discount to the SP500
–
15.
4x)
and a
dividend
yield
of
4%, which could start to
drive
support from income investors.
While it’s
difficult to pinpoint the time at which the spread will begin to narrow, we believe the
current upside potential and yield
offset any
potential gain of delaying.
A compelling macro case for
PFE and
US Major Pharma
Last week,
our US Equity Strategy team highlighted healthcare as a defensive sector
with a relative forward P/E at a four-year low, and a 20% discount to its
historical levels
(see
note
)
. As a general theme, the team
favor
s
large cap
s
with
liquidity over leverage,
high
-
quality earnings and dividend growth potential, which PFE unequivocally satisfies.
In addition, Pharma screens as attractive
on relative ownership within
healthcare (
Chart
1
), * * * * > And after hours news: Back to News FDA advisory panel recommends approval of biosimilar RemicadeFebruary 09, 2016 06:33 PM ET Reuters Feb 9 (Reuters) - A medical advisory panel to the U.S. Food and Drug Administration on Tuesday recommended approval of a biosimilar form of Johnson & Johnson's Remicade arthritis drug, deciding it was highly similar to the blockbuster branded product. The independent panel determined that clinical trials of the biosimilar from Celltrion Inc and Pfizer Inc , called Remsima, showed no clinically meaningful differences between it and Remicade in treatment of rheumatoid arthritis and a related condition called ankylosing spondylitis. Moreover, the panel agreed that Remsima is likely similarly safe and effective for other conditions Remicade treats, including psoriasis and inflammatory bowel conditions like Crohn's disease and ulcerative colitis, even though Remsima was not tested against those conditions. (Reporting by Ransdell Pierson; Editing by Bernard Orr) REUTERS |
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