Tax Reform in This Election Year: It's Not Likely
Which Credit Card Rewards Does the IRS Care About?Pfizer, Inc. (NYSE: PFE) failed to impress investors with its results. Its stock is down three cents a share in early morning trading to $27.04.
My college roommate, who attended Columbia Law School with Pfizer CEO Jeffrey Kindler, holds him in high regard. While this might be good news for PFE holders in the future, it's clear that Kindler is still cleaning up the mess left by his predecessor from whom he took over in July 2006.
PFE's results were not great. According to Bloomberg News, PFE's earnings fell 18% to $3.4 billion due to declining sales of two of its best-selling treatments, the antidepressant Zoloft and Norvasc for blood pressure. Although it beat analysts EPS expectations -- excluding certain costs Pfizer earned 68 cents a share -- the drug maker lowered its revenue guidance for 2007.
Kindler forecast that PFE's 2007 revenue will drop $1.2 billion lower than projected because of sooner-than-expected generic competition to Norvasc and underachieving sales from its inhaled insulin Exubera. Zoloft also faces generic rivals. To offset the declining revenue, Kindler announced a 10% cut in Pfizer's workforce by 2008 -- erasing 10,000 positions and lowering PFE's costs by $500 million to $1 billion a year.
Although the stock is up 9% in the last year, this bad news makes my contrarian instincts kick in. Unfortunately, the numbers don't support that instinct. PFE trades at a forward P/E of 12.4 but its earnings are forecast to grow a mere 6.6% to $2.32 in 2008.
It's easier to cut costs than to spur revenue growth. Until Kindler can do that, PFE's 1.88 PEG ratio is a bit too steep for my taste.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Pfizer.
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Reader Comments (Page 1 of 1)
4-22-2007 @ 8:47PM
L. Jaden said...
You may want to check where Mr. Kindler went to law school.
4-22-2007 @ 8:16PM
Peter Cohan said...
I'd like to correct this post. Kindler attended Harvard, not Columbia law school. My college roommate met Kindler at Tufts University, not at law school. I was confused about where they met each other.
Here's a link to Kindler's bio.
http://en.wikipedia.org/wiki/Jeff_Kindler