Who Really, Really Wants Some More Pfizer Stock?

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An entity with deep pockets is looking to buy boatloads of Pfizer (NYSE: PFE  ) stock. And we're talking yacht-sized boatloads -- not canoe-sized ones. Who is this big spender eager to buy shares of the pharmaceutical giant?

None other than Pfizer itself.

Familiar pattern
Pfizer's board authorized a new $10 billion share-repurchase program this week. That comes on top of $3.9 billion remaining under the company's current share-buyback authorization.

The latest move is part of a familiar pattern for Pfizer. Over the past two and a half years, the company has embarked upon four different repurchase programs. Including the latest authorization, the combined amount of these buybacks totals around $39 billion. That's a boatload of money in anyone's book.

This new buyback of $10 billion plus the remaining $3.9 billion from the last authorization comes to nearly 7% of the company's current market cap. Pfizer also plans to retire around $11.4 billion in shares with its spinoff of animal-health business Zoetis.

Other alternatives
Of course, some investors might have preferred that Pfizer bump up its dividend instead. Pfizer's yield stands at 3.4% currently. That's not bad at all, but it's lower than the five-year average yield of 4.4% that shareholders have enjoyed.

On the other hand, Pfizer's yield already stacks up pretty well against some other big pharmas. Bristol-Myers Squibb (NYSE: BMY  ) has a dividend yield of 3.1%. Merck's (NYSE: MRK  ) yield stands at 3.7%. Pfizer fits right in the middle but still pretty close to both of these peers.

Other investors might wish that Pfizer would use some of its cash to acquire a few smaller companies. Protalix BioTherapeutics (NYSEMKT: PLX  ) has been mentioned as one possible candidate. The two companies already partner together on Gaucher disease drug Elelyso. In February, Protalix spurred rumors that Pfizer could be interested in buying the company after it announced that it had engaged Citigroup to pursue a "broad array of strategic alternatives."

The Elelyso connection does appear to make Protalix a reasonable fit for Pfizer. Israeli newspaper Calcalist reported in February that Protalix wanted to sell for $1 billion. That's more than twice the current market cap of the company and could be more than what larger players are willing to pay. However, that price tag is only a drop in the bucket for Pfizer.

Motley Fool analyst Max Macaluso suggested nearly a year ago that Pfizer should seriously consider partnering with MannKind (NASDAQ: MNKD  ) . Max saw some synergies in the two companies' working together on commercializing MannKind's inhalable insulin product, Afrezza. MannKind has stated that it is in discussions with potential partners.

Partnering is a different proposition than buying a smaller company. However, many of the same reasons given for a partnership could also apply to an outright acquisition. Even with MannKind's big stock run-up this year, Pfizer could easily foot the bill if it chose to buy the up-and-coming biotech.

Regardless of which company investors think Pfizer should buy, such a move seems unlikely unless CEO Ian Read has a change of mind. Read's philosophy so far has been that the company's money is better spent on buybacks than acquisitions or dividend increases.

While buying other companies hasn't been a priority, partnering certainly has -- and not just with small biotechs. Pfizer and Bristol-Myers Squibb collaborated on blood-thinning drug Eliquis. The two companies received FDA approval for the drug in late 2012 and previously received regulatory clearance in Europe and Japan.

Pfizer announced a major partnership with Merck earlier this year. The two big pharma organizations joined forces on development and marketing of diabetes drug ertugliflozin. They will also collaborate on using the experimental drug with Merck's Januvia.

Good move?
Pfizer's new buyback is a good move for investors. Shares are more than 9% lower than this year's high reached in April. The stock looks to be valued attractively.

With Pfizer itself wanting more of Pfizer stock, should investors jump on board also? While economic issues could make the rest of the year less rosy than the first part of 2013, I think Pfizer is a good buy over the long run. My view is that the $10 billion the company uses to buy shares back will end up being a pretty good investment.

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Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2013, at 6:26 PM, incar82 wrote:

    Everyone knows that MNKD are in talks with multiple Pharmas for partnering or flat out buyout. MNKD have come a long way and Pfizer have some remaining partnering assets with MNKD. When Exubera was pulled, PFE left MNKD millions of insulin and a factory. PFE lost 2 Billions, and now can return with a complete outright purchase around 4.6 Billions. This is very cheap for a top of the line Diabetic drug. Afreeza could accomplish sales in the 3-5 Billions yearly if a Company like PFE take it . That is providing approvals. We anticipate Approvals this time because Afreeza is a low risk Diabetic medication , easy to use and is fast acting compared to others. Big Pharma's are looking for Afreeza. This is a mega billion dollars drugs over a few years and could own the Type II Diabetic markets all over the world.

  • Report this Comment On June 29, 2013, at 6:50 PM, jayliversage wrote:

    This buyback is not a joke but raising the dividend would be better as would making an acquisition or two. Or how about some good old fashion R & D to try to become a growth company again!

  • Report this Comment On June 30, 2013, at 3:08 AM, EllenBrandtPhD wrote:

    They may make what most consider a bargain basement acquisition of the Russian company Biocad in the next few weeks - bargain basement, because Russian companies and currency are looking dirt cheap right now, so it's a "strike while the iron is hot" situation. Amgen may want Biocad more, though, say some.

    July may be PFE's month, on many levels. Pharma could be back in favor again in a general seasonal shift away from risk.

    The Quigley resolution is good news, not bad, as something, covered by reserves, that has been lurking negatively in the background.

    And some legal mavens consider the mammoth settelent PFE received from Teva and Sun a landmark, with possible far-reaching positive consequences for Big Pharma versus generics.

  • Report this Comment On July 05, 2013, at 2:08 PM, EllenBrandtPhD wrote:

    PFE has treaded water since above comments by me and other Fools for one reason: Speculation, founded or unfounded, that PFE was among those considering an Onyx bid.

    I think that speculation is unfounded, although anything is possible. But PFE doesn't exactly have a reputation for overpaying for anything the past several years. It has a reputation for the opposite - spinning off things at very good prices and making acquisitions at astute bargain prices, for the most part.

    And now that they have this magnificent cash hoard, are they likely to squander it immediately?

    Clearly, Standpoint - a firm I frankly know nothing about - and some Shorts think so.

    I still believe they are going to do just what they said they were going to do: Continue with a mammoth share buyback, which could reduce the float by another 10-15 percent soon, while making small strategic acquisitions that the Market is likely to look on benignly.

    I like this Biocad acquisition possibility, don't you? Cheap because of the ruble and the Russian market - conditions which will not last much longer, perhaps. And what seems like a first-rate team of scientists working in a very interesting area.

    But let us see what we shall see.

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