Pfizer Is At A 'Strategic Crossroads'

• Shares of Pfizer Inc PFE were volatile in 2015 and are up 5 percent year-to-date.
• Barclays’ Geoff Meacham assumed coverage of the company with an Equal-Weight rating and a price target of $34.
• Although the company has returned to modest growth in 2015, it is at a strategic crossroad, Meacham stated.

Pfizer’s tie up with Allergan PLC AGN is expected to work out if consensus estimates for the latter are met, analyst Geoff Meacham mentioned.

“Our NewCo model suggests a good financial rationale from a tax perspective though share repos figure heavily,” Meacham stated, while adding that the new company needs to achieve the targeted cost cuts of $2 billion.

Achieving the desired cost cuts may, however, be difficult, given that Allergan itself is undergoing integration and cost cutting and there is little overlap between the operations of the two companies.

“Given the significant cash flows generated by GEP and high transition costs that would be needed to support the Innovation business, we think it’s unlikely that much value is trapped in PFE ahead of an Enbrel biosimilar and generic Viagra/Lyrica,” the Barclays report added.

Pfizer can take up restructuring and reduce SG&A and R&D costs, while using the saved funds to reinforce its pipeline. “Pfizer’s pipeline is developing the right kinds of assets but we see them as late entrants that are likely to trail the market leaders,” the analyst commented.

Although Pfizer has returned to modest growth after a patent cliff, it is at a strategic crossroads as Innovative Products and acquisitions are barely offsetting the declines in Established Products, Meacham noted.