Investors better hope that Pfizer (NYSE:PFE) can keep that fat dividend going, because earnings growth certainly won't drive its share price higher.
Despite adding substantial revenue from Wyeth, the bottom line won't grow much. Increased interest expenses will eat up profits, and they'll be spread among a larger pie, since the purchase was paid for partially in shares.
|
Metric |
2009 |
2010 |
2012 |
|---|---|---|---|
|
Revenue (guidance for future years) |
$50 billion |
$67 billion to $69 billion |
$66 billion to $68.5 billion |
|
Non-GAAP EPS (guidance for future years) |
$2.02 |
$2.10 to $2.20 |
$2.25 to $2.35 |
|
Annual EPS growth from 2009 |
4% to 8.9% |
3.7% to 5.2% |
Source: Company Press Release. EPS = earnings per share.
Pfizer's 2012 revenue guidance is $1.5 billion lower than what the company thought the top line would be when it announced the Wyeth acquisition, but the difference seems to all be accounted for. Pfizer set up a joint venture with GlaxoSmithKline (NYSE:GSK) to market its HIV drugs, which moved the sales off the revenue line. Wyeth handed back Relistor to Progenics Pharmaceuticals (NASDAQ:PGNX), and Pfizer also sold off some animal health products to satisfy antitrust regulators. And that lower revenue guidance necessarily lowers EPS guidance.
However, instead of focusing on earnings, cash flow is a better indication of how Pfizer is doing. This is especially true for companies like Pfizer, PepsiCo (NYSE:PEP), McDonald's (NYSE:MCD), and Johnson & Johnson (NYSE:JNJ) that count on the cash generated by operations to pay their dividends. We'll have to wait for Pfizer to file its 10-K to get last year's cash flow number, but Pfizer did mention that it expects to have cash flow from operations of "at least $19.0 billion" in 2012. Take out the $4.3 billion or so it is currently paying out in dividends a year, and that leaves Pfizer plenty of room to run if investors think Pfizer will be able to grow from 2012 and beyond.
More importantly, the cash should give Pfizer buying power to make smaller strategic purchases, which could help boost earnings later in the decade.
