BMO Downgrades Pfizer After Q3 Print, Says Risk-Reward 'Fairly Balanced' - Pfizer (NYSE:PFE)

Pfizer Inc. PFE reported mixed third-quarter results Tuesday that triggered a downgrade by BMO Capital Markets.

The Analyst

Analyst Alex Arfaei downgraded Pfizer from Outperform to Market Perform and lowered the price target from $47 to $46.

The Thesis

Pfizer's changed narrative on R&D productivity and inorganic growth has excited the market, Arfaei said in the downgrade note. (See his track record here.)

The analyst highlighted recent R&D wins, including Tafamidis, expanded indications for Xeljanz and Xtandi and encouraging data for Tanezumab and new JAKs.

Arfaei is upbeat about the long-term potential for a number of Pfizer's pipeline assets and said he expects them to help drive mid-single-digit revenue growth between 2020 and 2025 and margin expansion.

That said, the analyst sees execution issues between now and 2020 in areas such as immuno-oncology drugs and Tanezumab, as well as significant headwinds in 2019 and the first half of 2020.

After the Q3 print, BMO lowered its revenue forecast by 3-4 percent, citing muted expectations for Ibrance, Xeljanz, Prevnar, biosimilars and matured franchises. BMO's 2019-2020 estimates are 2-5 percent below the consensus.

Between 2018 and 2023, Arfaei projects Pfizer's revenue and EPS will rise by a CAGR of 3 and 7 percent, respectively.

"Although we have a positive longer-term view of Pfizer, we believe the risk-reward in PFE is fairly balanced here following the strong 12-month performance," the analyst said.

The bullish expectations on a number of pipeline assets such as Tafamidis and Tanezumab are already reflected in Pfizer's stock, with near-term headwinds likely to restrain meaningful multiple expansion in 2019, according to BMO.

The Price Action

Pfizer shares have added about 22 percent year-to-date.

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