With the addition of Wyeth last quarter, there's no doubt Pfizer (NYSE:PFE) is larger, but whether that bigger size translates into savings that boosts profits remains to be seen. We'll get our first look at how the integration is going when the pharmaceutical giant reports earnings on the other side of the sun rise.

What analysts say:

  • Buy, sell, or waffle? Buys outnumber holds by more than 2-to-1. Fourteen analysts have rated Pfizer a buy, while only six give it a look-elsewhere-for-high-returns hold.
  • Revenue. Average out the analysts' estimates to a nice round $16 billion. Don't get too excited about the 30% increase, though -- remember, there are 2.5 months of Wyeth's drug sales in there.
  • Earnings. Analysts are looking for $0.50 per share from Pfizer in the fourth quarter -- down from $0.65 a year ago. That would be on a non-GAAP basis; expect a massive charge for in-process R&D in connection with the Wyeth acquisition.

What management says:
CEO Jeff Kindler can certainly talk the talk. Long before the integration started, management was spouting off about how they weren't going to repeat previous failures that occurred when integrating Pharmacia and Warner-Lambert. At Goldman Sachs' CEOs Unscripted conference last month, Kindler continued the efficiency rhetoric: "If I see a committee I blow it up. I'm on a search and destroy mission."

But talk is cheap, and investors will need to see Pfizer walk the walk before they'll give Pfizer the boost Kindler is looking for. Shares have recovered all their post-merger-announcement loss, but Pfizer still trails the S&P500 by 20 percentage points since the announcement was made about a year ago.

What management does:
Before the integration, Pfizer was doing a really good job at getting more efficient. Cost-cutting helped boost gross and operating margins. Net margins didn't quite feel the same boost, partly because of increasing interest payments as Pfizer borrowed money to pay for the acquisition.

Margins

June 2008

Sept 2008

Dec 2008

March 2009

June 2009

Sept 2009

Gross

83.7%

83.3%

85.1%

85.9%

86.3%

86.6%

Operating

31.1%

31.2%

34.8%

35.8%

36.7%

37.4%

Net

18.5%

21.6%

16.8%

17%

16.3%

17.8%

FCF/Revenue

30.2%

28.8%

34.2%

35.2%

35.2%

36.1%

Unfortunately, those increases in efficiency have been necessary because revenue was headed in the wrong direction for all of last year. A lot of that has to do with Lipitor, which saw sales drop by 11% during the first three quarters of the year as it competed with AstraZeneca's (NYSE:AZN) Crestor and generic versions of Merck's (NYSE:MRK) Zocor. Of course, that's nothing compared to the massive drop expected once Lipitor starts seeing its own generic competition late next year.

Y-O-Y Growth

June 2008

Sept 2008

Dec 2008

March 2009

June 2009

Sept 2009

Revenue

0.8%

1.4%

(0.3%)

(1%)

(5.5%)

(6.1%)

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.

One Fool says:
Large mergers have a history of failing to deliver for shareholders -- Pfizer isn't the only culprit. Is that a reason not to invest? Maybe not, but it's certainly a risk that investors should be aware of. If you're putting your money in the hands of this management team, you'd better have confidence that it'll be able to execute on its this-time-it's-different plan.

It's hard to develop a large pipeline internally. I get that. But I'd much rather see management seek out smaller deal, as GlaxoSmithKline (NYSE:GSK), Johnson & Johnson (NYSE:JNJ), and Abbott Labs (NYSE:ABT) have done. Large mergers, like those that Pfizer and Merck did last year, may not be the best way for drug companies to spend their hard-earned cash.

Nick Kapur takes a look at one stock that management killed. 

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Johnson & Johnson is a selection of the Income Investor newsletter service. The Fool owns shares of Glaxo and has a disclosure policy.