Here is an excerpt from a post yesterday by Gooburpeez showing Goldman Sachs revised earnings estimates for 2007-2012:
We are modestly trimming our 2007E-2012E EPS to $2.11, $2.31, $2.50, $2.63, $2.18, and $2.05 (from $2.16, $2.33, $2.51, $2.65, $2.19, and $2.04).
My own estimates for 2007-2009 aren't much different (I have penciled in $2.15, $2.35 and $2.55). But in the 2010-2012 Lipitor expiration period, I differ dramatically from GS. Furthermore, I can't possibly see how their 2012 can be anything remotely resembling ballpark.
Starting with their 2009 estimate of $2.50 which I have no big quarrel with, it can be broken down into two components - 1) the Lipitor component of about 70 cents per share and the NON-LIPITOR COMPONENT of about $1.80 per share.
It doesn't take a genius to know what will happen to the Lipitor component from the end of 2009 to the end of 2012 - earnings for the statin will plunge from 70 cents or so to about 10% of that amount or 7 cents - with that contribution being by those that would never consider using a generic.
So if GS is estimating 2012 earnings company-wide at $2.05 and Lipitor will contribute 7 cents, it means that the non-Lipitor component, which would be producing $1.80 per share in 2009 would only grow to $1.98 three years later in 2012.
How realistic is THAT when total losses to patent expirations in the non-Lipitor component in 2010-2012 combined will only be about $3.9B - or $1.3B on average per year? In 2008 alone there will be $3.9B in losses to expirations and yet earnings per share are expected to rise by about 10% - so to expect a THREE-YEAR COMBINED GAIN of only 10% in the non-Lipitor segment from $1.80 to $1.98 is just outlandish.
Especially when there will be such favorable demographics in 2011 and 2012 with the leading edge of baby boomers reaching Medicare age. And with presumably a lot of extra business from China, India and Brazil. To say nothing of Pfizer's current early-stage pipeline finally starting to bear fruit. And then perhaps $5B in acquisitions each year in the 2010-2012 period.
I have the following estimated patent expiration losses in the non-Lipitor sector for 2010-2012 period:
$0.2B in 2010 $1.2B in 2011 $2.3B in 2012
Everything considered and starting with $1.80 in non-Lipitor earnings in 2009, here's how I see the non-Lipitor component progressing year over year:
$1.80 in 2009 (more or less the GS estimate)
$2.05 in 2010 (unbelievably low non-Lipitor patent expirations of $0.2B).
$2.28 in 2011 (slightly higher patent expirations - $1.2B - but more product introductions and better demographics).
$2.50 in 2012 (still higher patent expirations - $2.3B - but even better demographics).
So I see something like $2.50 per share for non-Lipitor earnings and then 7 cents for Lipitor - bringing 2012 company-wide earnings to $2.57 or some such.
How can GS possibly only see $2.05 per share that year? What's the matter with them? Any insights would be appreciated. I know that GS is very highly respected on the Street but from where I sit, their estimates are strictly out of Alice in Wonderland.
Because GS analysts are smarter than you are, not stark raving mad, certified loons like you, much more highly educated & trained than you, with vastly more experience & with access to far more & better information, for starters.
It's not rocket science: sales of $42 billion X .3 profit margin / 6.15 billion shares = $2.05 EPS. You have a problem with that?
************************************************* Re: Milo, your bet's looking good! Already 65% of the way 13-Jun-07 08:25 pm
There's no "traditionally" about it. The past three years it just so happens there were major travesties the second half (adverse Celebrex test in 2004, the yanking of estimates in 2005 and Torcetrapib failure in 2006).
There's nothing apparent in the way of travesties in 2007. No optimistic forecasts and no huge drugs under development that could fail. Any travesty this year would have to come completely out of the blue. There would be little reason for an investor to expect any such thing.
You saw the lows this year on March 5 with the $24.70 close. Nothing resembling that will be seen. EVER!
There is a huge difference between assuming 5% price increases for '08 and doing so for '12. GS may be modeling no price increase in '12, assuming that by then the risk of price decreases is at least as much as price increases. Same for things like Chindia growth. '08 is far more visible than '12. So their number COULD turn out to be conservative, but they think, I assume, that the upside and downside to their numbers is balanced. I haven't seen the report, but I'd be surprised if their thinking doesn't include things like the above. And I just focused on two of probably a dozen such assumptions that you just continue as was and they probably don't.