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.
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.
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:56400P706). 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.
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.