). The Street has been down on Big Pharma, and one of the most unrelenting is Richard Evans of Sanford C. Bernstein. Of late, he called Merck and Bristol-Myers Squibb "potential value traps" and advised clients to avoid them. They sport artificially low price-earnings ratios, based on inflated projections, he argues. But Evans thinks estimates of Pfizer's earnings aren't inflated, so the p-e ratio suggests that the "bear story" is already in the stock's depressed price, now 35.02.
Although Evans had been a big bear on Pfizer, he sees some near-term gains. "We envision 11.6% annual per-share earnings growth through 2006. Yet the stock implies only 9.5% growth," says Evans. Using that higher rate, he says, the price should be 38. He still has a neutral rating on Pfizer--"but it's hard to resist the stock," now, says Evans. "We would add to positions, especially below 35."
On June 12, Evans raised his earnings forecast for 2003 from $1.78 a share to $1.81, and for 2004 from $1.92 to $1.96. His 2002 estimate stays at $1.56. Pfizer trades at 22 times the 2002 estimate, 19 times the 2003 numbers, and 17 times 2004's figure. Pfizer made $1.31 in 2001. The p-e's are close to those of the industry and of the Standard & Poor's 500-stock index. Part of the deterioration in Pfizer's p-e is due to the industry slump. Some disadvantages he sees in Pfizer: slowing sales of Lipitor and Viagra, and lower margins from consumer products that Pfizer acquired when it bought Warner-Lambert in 2000.
Possible good news: Evans is betting Pfizer will buy back shares, given the stock's drop and its hefty cash hoard, and may spin off Warner-Lambert's consumer businesses, which he reckons are worth $8 billion--about $3.50 a share. By Gene G. Marcial