Pharmaceutical giant Pfizer (NYSE:PFE) releases earnings tomorrow morning. Let's take a look at what the numbers might say and, more importantly, what management might be able to say to get this stock out of its drug-induced coma.

What analysts say:

  • Buy, sell, or waffle? With five buys, 10 holds, and one sell, most analysts still aren't sure Pfizer has reached the bottom.
  • Revenue: The top line is expected to come in essentially flat at just over $12 billion. Changes in currency rates could determine whether Pfizer makes or breaks that number.
  • Earnings. Analysts are looking for an additional $0.02 over the third quarter of last year to an adjusted $0.60 per share.

What management says:
Management is trying to cut spending and reorganize itself into a more profitable company. The only problem is that you can't cut forever, and whether they like it or not, Lipitor is eventually going to see generic competition.

The company needs to spend some of the $26 billion in cash and short term investments it's been hoarding. Ironically, management is looking pretty smart by waiting to make a purchase as prices have come down recently. Pfizer could potentially make a large acquisition of Genzyme (NASDAQ:GENZ) or even Gilead Sciences (NASDAQ:GILD) for 20% less than it could have just a few months ago.

What management does:
Restructuring charges, which have ranged from $535 million to over $3.6 billion per quarter over the last year and a half, have been killing net margins. They should end eventually (hopefully), just in time for operating margins to coming crashing down with the loss of Lipitor exclusivity.

It's nice to see free cash flow relative to earning increasing. Pfizer needs as much cash as it can to pay its dividend -- the thing that's contributing most to keeping up its stock price at this point, in my opinon.

Margins

3/2007

6/2007

9/2007

12/2007

3/2008

6/2008

Gross

84.7%

84%

84%

84%

83.7%

83.7%

Operating

31.6%

29.7%

29.7%

30.5%

29.3%

31.1%

Net

37.9%

36.1%

30.9%

16.8%

15.8%

18.5%

FCF/Revenue

26.3%

23.7%

25.4%

23.7%

27.9%

30.2%

Growth (YOY)

3/2007

6/2007

9/2007

12/2007

3/2008

6/2008

Revenue

4.4%

2.4%

(0.3%)

0.1%

(2.7%)

0.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

Like it's expected to do this quarter, Pfizer has been treading water with its revenue over recent quarters. To be fair, it did sell its consumer health care division to Johnson & Johnson (NYSE:JNJ) at the end of 2006, so the year-over-year comparisons in 2007 did have a tougher act to follow.

One Fool says:
Perhaps more than ever, revenue and earnings can take a back seat to cash flow. It's cash that's driving Pfizer's ability to make future acquisitions and pay its dividend, and those are the things that are keeping a floor on Pfizer's stock price.

Whether it can turn things around like Merck (NYSE:MRK) did after sales of Vioxx went to zero overnight remains to be seen. My guess is that, with all the cash it has on hand, Pfizer should be able to come back from its post-Lipitor cliff. In the meantime, investors can enjoy their better than 7% yield while they wait.

Pfizer and Johnson & Johnson are both Income Investor recommendations. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day free trial.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is an Inside Value pick. The Fool owns shares of Pfizer. The Fool has a disclosure policy.