<Two Big Pharma companies provide the perfect example.
Pfizer (PFE) has repurchased more than $19 billion worth of its shares since 2005. Its share price has steadily slid from $28 to under $17 during that time.
Meanwhile, its core business has gone down the tubes. The company’s pipeline of new drugs is very limited. And a few of its key cash cow drugs are set to go “off patent,” which means generic drug companies will start selling generic versions for much less.
Pfizer’s share buyback has been a big mistake. For $19 billion it could have bought itself a very strong pipeline of new drugs. A few patent-protected blockbuster drugs would keep the cash flowing in for years to come. >
Your big problem is that you simply don't have it in you to do some clear, logical thinking.
Because if Pfizer can rise earnings by 5% in a year like 2006 that didn't have any currency translation gains, it's certain that they could raise it by 10% in a year like 2014.
Stop to think for a minute about the difference in a year with, say, $3.5B in patent expiration losses as compared with a year like 2014with $1.5B in such losses. $2B in additional losses at 28% margin is $5.6B after taxes and in 2006 with 7.1 billion shares outstanding, it was an additional 8 cents a share less on the bottom line which was a full FOUR percent.
Yes - 4% less earnings simply because of $2B more in patent expirations. That's how important the patent expiration schedule is. Let's see you try and refute that.
But then in 2006 there were NO baby boomers turning 65. There was very little in the way of penetration into countries like China, India, Russia and Brazil.
There was also just a paltry pipeline that year - only five total five new drugs and indications combined in the late-stage pipeline when Kindler took over at the end of July. And Pfizer was spending a fortune with Torcetrapib and then having all kinds of bad luck with Exubera and Indiplon.
Even with a lot of failures, they are still going to do much better with their greatly-expanded pipeline now than when they only had a few drugs several years ago and then proceeded to have the worst of luck.
How can you possibly think that if PFE could show 5% earnings gains in years like 2006 that they couldn't at least do 10% in 2007 with so much less in the way of patent expirations, so much better demographics here and worldwide and with a greatly expanded pipeline?
You're just not using your noodle.
Have you really never noticed that you are always wrong?
PFE won't grow at 10% "at least" after 2014 any more than it grew at "accelerating double digit" rates after 2005. It will be lucky to grow at 5%.
Who has always been right & who has always been disastrously wrong, your betters or you? Nothing in the future will change the stubborn, immutable fact that you are always wrong.
That was a dumb, slanted article written as the market was crashing. Decisions though are made in real time and in years like 2005, 2006 and 2007, nobody would have expected to see the once-in-a-lifetime crash. Nobody was expecting Pfizer's stock to go much below $20 and it's absurd to be blaming management just because it did when they bought back shares at higher prices.
But because when you acquire other drugs or firms you have to pay a substantial premium, the stock buybacks at higher prices were STILL better.
For that $19B, PFE was able to buy back about 750 million shares at an average price of $25. Because of those buybacks, PFE today has 8.10 billion shares outstanding whereas without the buybacks the share count would have been 8.85 billion.
With the share buybacks as opposed to more acquisitions, the company is expected to net about $17.5B non-GAAP after taxes.
That's $2.16 per share after the buybacks but on 8.85 billion shares would have amounted only to $1.98 per share. So management ended up with 18 cents a share more with the buybacks as is.
If with the $19B they could have bought $3.17B in revenues (3 times sales) with an after-tax profit margin of 25%, the extra earnings would be just about $800M more per year.
So this year for example, instead of earning $17.5B non-GAAP after taxes they would be earning $18.3B - but again they would have 8.85 billion shares outstanding instead of 8.10 billion.
And $18.3B divided by 8.85 billion shares comes to $2.07 per share which is over 5% LESS than the $2.16 that is expected to be seen.
So don't be telling me that management made a mistake as they are doing considerably better with the stock buybacks even at an average of $25 as opposed to paying expected premiums and acquiring new drugs for $19B at three times sales.
Do these so-called analysts ever actually take the time to put pencil to paper?
Do YOU take the time to spend a few minutes doing it or do you simply accept what these bloggers have to say carte blanche?
They did aquire new drugs with the Wyeth buy. They also got 4.5 billion in profits, large cost cutting because of it. And a large drug pipeline added to their own. I think a good share buyback program would go nicely now as debt is being payed off and shares are at this low a price. They could average a lot lower cost than the ones from a few years ago.
I dont see a problem with sharebuybacks especially when the share price is as low as now. Their really is no difference between getting a larger pie or having less people to eat from the one we have now. Especially if those pie eaters can be bought out at this low a price.
Obviously lots of people saw the crash coming & profited thereby. It's ludicrous to claim "no one" saw it coming.
Everyone from retirees who switched from stocks to bonds to analysts like Meredith Whitney to players like John Paulson saw it coming. Many on this very board warned you to get out in 2007 & urged everyone to flee stocks from Dow 13-14K. Why do you think the Dow dropped from 14K to 10K before the final plummet to 6440, if not for investors big & small getting out?
Why must you lie so blatantly, just to make lame excuses for your abject failure?
The cash will be flowing for years to come. 19 billion dollars free cash flow per year for several years and slowly increasing. With the Wyeth purchase, huge cost cutting, new drugs in pipeline and growing markets for PFE products none of which are mentioned in this article, PFE will make up for the patent losses. Even if their is slow or no growth for a few years we have to remember that PFE is selling for 6.5 earnings at this point. The stock has been beaten down to much and will rebound eventually, especially with the nice and growing dividend. If i had more cash i would buy more and hold long term.
I already pointed out to Alan the utter failure of the stock buyback program, but stubborn fact elude the loser's ken.
Like Obama lamely trying to defend the trillion dollar waste, fraud, abuse & deficit ballooning porkulus package, Chartnuts argues that PFE would have lost even more value without the buyback.
You can always tell a lying loon, but you can't tell him much!