Healthcare Pfizer Inc. (NYSE:PFE): Here's Why Piper Still Sees 'Substantial Upside

Pfizer Inc. (NYSE:PFE): Here's Why Piper Still Sees 'Substantial Upside

Published By Blake Audett at October 14, 2016 11:58 am

Piper Jaffray continues to stay bullish on Pfizer Inc. (NYSE:PFE), despite the Street being unable to single out any near-term upside-generating catalysts for the stock. The company recently decided against separation of its established drugs and new drugs businesses, saying there was no trapped value in its conglomerate structure presently. 

Piper Jaffray’s Richard J. Purkiss and Ariel R. Johnson reiterated an Overweight rating on Pfizer stock in an October 13 research report, saying that the Street “continues to misunderstand the medium to long term outlook” of its Essential Health business (older drugs). The analysts recently hosted investor meetings with Pfizer’s Essential Health President, John Young, and Senior Director of Investor Relations, Ryan Crowe. “Within the forecast horizon, we see the Essential Health business emerging into a low, single-digit grower with relatively stable, attractive margins and strong cash flows,” the analysts concluded, saying that there is room for “substantial upside” in Pfizer’s stock price. They maintain a price target of $54 for the company’s shares, compared to the last closing price of $33.07. 

Piper’s analysts note that Pfizer’s Mr. Young identified four growth-driving levers for the company. These include, “(1) Active portfolio management i.e. focusing on growth opportunities; (2) Bolt-on BD in areas of core competence (e.g. anti-infectives or Women's Health); (3) Divestment of non-core or low-differentiation product lines; (4) Extracting cost efficiency where possible.”

Mr. Young also believes that the medium to long-term outlook for Pfizer’s sterile injectables and biosimilars business remains positive due a high barrier-to-entry from both, a manufacturing and regulatory point of view in the development markets. Speaking on Pfizer’s troublesome legacy established products, which have been dragging down profits for the whole company, the analysts said that the price erosion from loss of exclusivity and competition can be offset by consistent volume growth in emerging markets. This can result in a mid-single digit growth outlook for the products in the medium-term. 

In a report released yesterday, Jefferies analyst Jeffrey Holfor cut the rating on Pfizer stock from Buy to Hold and reduced the price target from $39 to $36. He said that key drivers for the company’s upgrade have either played out already (including drugs like Ibrance and Prevnar) or did not materialize (including the proposed split and inversion deal with Allergan).