I think we need to clearly identify what factor really has the major effect on the stock price of a pharmaceutical company such as PFE. If you recall, PFE beat the earnings expectation by a whopping 9 cents on the Oct. 19 earnings report. What happened to the stock price after this very favorable earnings announcement? It went down sharply that day and for a number of days afterwards. Part of that decline was due to the overly cautious and uncalled for statements by our CEO. However the key point is the following. Just after the earnings report on Oct. 19 UBS downgraded PFE and the reason was the delay in the Exubera launch plus the report on the systolic BP increase of torcetrapib, Lipitor's successor. Both of these setbacks, taken alone, seem to be rather minor. However perception is everything when it comes to a drug company's drug price, and PFE is no exception. These adverse events, no matter how trivial they seem, always 'spook' investors and the analysts. I believe that there is a general perception among the stock analysts and the major institutional investors, that PFE often disappoints when they try to launch drugs from their pipeline like Exubera and torcetrapib. The result is a lack of confidence in the company which reflects in the stock price. During the same reporting period, Merck beat their earnings expectation by a lousy 1 cent, yet Merck stock went up nicely that day, and for a number of days after the reporting period. There were no cautious statements by the Merck CEO. To the contrary, he raised the profit forecast, and furthermore noted in his report that Merck received three FDA drug approvals, most noteably Gardasil, the cervical cancer vaccine which is touted to be a potential blockbuster. The conclusion from these examples is straightforward. The investors don't care if Merck only beat their earnings expectation by just 1 cent. They have given the analysts and their investors the confidence that Merck can provide sustained growth by bringing on important new drugs in a timely fashion. On the other hand PFE beat their earnings expection by 9 cents, but the PFE stock price went down because of the uncalled for ovely conservative remarks of the CEO and just as important they were 'spooked' by the report on torcetrapib and the delay on the launch of Exubera. It seems rather obvious that bringing on drugs from the pipeline in a timely fashion has much more bearing on the stock price of a drug company than buying back stock, favorable foreign currency transactions, and other factors that help to beat the earnings target. The major charter of a drug company is to discover and bring to the market in an efficient and timely manner new drugs that have a significant positive impact on our health. Apparently the analysts and investors believe that Merck is doing a better job of this than PFE. I wish the opposite was true because I have a major investment in PFE stock and I don't own one share of Merck stock. Also I disagree with Chartness. Numbers don't necessarily 'speak for themselves'. I think that the analysts and investors are not nearly as concerned how much PFE beats its earning expections as they are with their worries about the problems that the company is having in launching drugs from their pipeline such as Exubera and torcetrapib that play such a vital role in PFE's future.
Good points. In other words, pfe is being viewed by the street as a Sears of the 1980's and 90's, and mrk is being viewed as an Abercrombie. The thing is that all large cap.pharma should be having, by reason of their size, the same difficulties discovering and bringing new products to market. What I am seeing is that not all large cap. pharma are created equal. Now we are seeing that some large pharma are executing better than others. Unfortunately for pfe., this is "the other".
I have yet to see anybody nail target prices in any compelling manner. Even if they guess right the first time, they will be wrong the next. Who thought mrk would be where it is at this point in time? More analysts have buy recs on pfe than on mrk and more newsletter writers liked pfe over mrk. Maybe some of the hedge funds got mrk right so those who think they can call future stock prices should perhaps apply for jobs at hedge funds.