U.S. stocks opened higher this morning, with the S&P 500 (^GSPC +0.19%) and the narrower, price-weighted Dow Jones Industrial Average (^DJI +0.19%) up 0.35% and 0.31%, respectively, at 10:20 a.m. EDT.
Getting to the bottom of "Pharma Tuesday"
The Dow's two pure-play pharmaceutical companies, Pfizer (PFE +0.51%) and Merck (MRK +0.09%), reported quarterly results this morning. Here's how things shook out.
Pfizer beat expectations with adjusted earnings per share of $0.59 versus the $0.55 consensus estimate. Revenue of $12.97 billion was in line with expectations for $13.01 billion. The company reaffirmed its full-year EPS guidance of $2.10 to $2.20.
More interestingly, the company announced that it will split its commercial operations into three parts, two for its branded products and one for generics. That move paves the way for a potential spin-off of the generics business. Chief executive Ian Read continues to reshape Pfizer after completing the divestiture of its nutrition and animal-health activities.
Meanwhile, Merk also beat estimates -- on an adjusted basis -- with earnings of $0.84 per share against $0.83. However, once acquisition and restructuring-related expenses are factored in, that number falls to $0.30 per share -- roughly half the amount it earned in the prior-year period.
In addition, revenue of $11.01 billion came in lower than the Wall Street's $11.22 billion forecast. One of the factors hampering revenue: the loss of allergy and asthma drug Singulair's patent, which produced an 80% year-on-year decline in the drug's revenue to $281 million. Ouch!
With both of these pharma stocks trading at less than 14 times their EPS estimates for the next 12 months and sporting 3%-plus dividend yields, they look very attractive -- on a superficial basis. That isn't to dismiss them entirely; they have attractive qualities. However, these aren't your grandparents' pharmaceutical companies. They're businesses in transition that are finding their place in a shifting technological and regulatory environment. Pfizer and Merck may be worth a look right now, but I wouldn't expect the returns of yesteryear from current levels.
