Pfizer plans to combine its generic-drug business, as well as off-patent products, including Lipitor, with Mylan Labs (MYL) and then spin off a 57% stake in the combined company, to be called Viatris, to its holders. That stake is worth about $2.50 per Pfizer share. Wall Street isn’t thrilled about the earnings impact of losing those businesses, and the stock, at about $39, is off 10% this year.
Nonetheless, the valuation on new Pfizer looks appealing, given management’s expectation of 6% annualized sales growth through 2025, which could produce 10%-plus yearly gains in earnings per share. New Pfizer has important patent-protected drugs like Ibrance for breast cancer and the pneumonia vaccine Prevnar, plus a strong pipeline. It trades for 15 times projected 2020 earnings of $2.25 a share, adjusted for the spinoff, expected at midyear. Pfizer holders are likely to get the same dividend from the two companies.
Cantor Fitzgerald analyst Louise Chen has written that the revenue gains, “operating leverage, pipeline advancements, return of capital to shareholders, and M&A are all underappreciated.” She rates the stock Overweight, with a $53 target."