I won’t bore you with a rehash of the numbers, for that you can check the Value Line report.
I’m sure BMW Method practitioners already know PFE is under -2RMS on Mike Klein’s BMW Method 20 year and 25 year charts and only a whisker away on the 16 year chart. The return factor, RF, ranges from 2.54 to 3.25, yummy, and those figures were calculated when PFE was $0.56 higher.
PFE is tantalisingly tasty on every fundamental score. It screams buy me, by me. Management are out beating their drum pleading buy us buy us.

So why aren’t investor hoovering up all the PFE stock they can?

The financial sites peg the dividend yield at 6.73. At a closing price of $18.80 and current quarterly dividend of $0.32, I think a yield of 6.8% is the minimum owners will receive over the next year or two. Since 2000 PFE has raised their dividend every year and since 2005 the increases have accelerated. The average dividend increase since 2000 is 17.3%. The increase did slow on a percentage basis to 10.3% this year, but at 3 cents is right on the average. Value Line predicts the dividend will grow at 5.5% a year through to 2011-13. I think PFE will increase their dividend in 2009 more than the 2 cents implied by 5.5% growth. However, using that figure I calculate a forward dividend of $1.32 and a yield of 7%. Yummy!

The one big question is clearly is the dividend sustainable. Business would have to deteriorate very badly from here for the board to cut the dividend. Pfizer’s pipeline would have to bare little fruit, Pfizer would have to be unable to buy any growth and unable to cut costs further. While those scenarios are possible I don’t think they’re likely. Management have articulated their strategy of increasing R&D and collaboration while cutting costs throughout the business.

Lipitor is coming off patent as early as March 2010 and there is no doubt that losing protection on a drug which contributed 26% of 2007 sales and 40% of profit will put a huge hole in Pfizer’s sales. The question is do they need another blockbuster to make up those revenues or will their cost cutting and some smaller drugs be enough? Analysts see promise in Lyrica for elipepsy and post operative pain, the approved Chantix for smoking cessation and Sutent which is approved and currently in P3 trials for breast, colorectal and breast cancer. Chantix has now be launched in 56 countries and Sutent in 61 countries.

I am unsure why Pfizer’s yet unnamed obesity drug, CP-945,598 CB-1 Antagonist, garners no mention. The race for an obesity drug is fast and furious with many contenders. The prize market opportunity of $35B+ is worth fighting for. CP-945,598 is in P3 trials and was well tolerated in P1 and P2 trials.

Where is the catalyst to stop the slide? If there were any clear possible positive catalysts the price wouldn’t be $18.80. Despite positive reports from ASCO, PFE stocks continued its multi-year decline.

What outcome do I need? On top of the 7% dividend I need around 7% capital growth. The following table shows the prices I’ll need in each year to achieve that.

In answer to my initial question as to why investors aren’t hoovering up all the PFE shares they can, I say people despise stepping into the unknown. Market participants abhor the unknown and that is what PFE is giving them in spades. At some point the unknown will become known and PFE will find some growth drivers. That is the most likely outcome and the one I am considering investing in.

For the risk tolerant

Buy PFE at $18.80 and sell equal quantity of Jan09 17.50 Put for $1.02.
Possible outcomes:

• PFE above $17.50 in Jan09 you have a cost basis on PFE of $17.80 and a prospective yield of 7.4%.
• PFE below $17.50 in Jan09. You own double the shares with a cost basis of $18.80+$16.50/2 = $17.65 and a likely yield of 7.5%
• PFE rises strongly. You participate in all the upside as you have not capped the upside.

Updating the above table with price targets required for my 7% capital growth to obtain a 14.5% CAGR.

Thanks for reading. I’d love to read your comments.