Pfizer Remains Underappreciated

After reporting second-quarter results, we continue to view Pfizer as undervalued, with the investment community underappreciating both the firm's pipeline and recently launched drugs. Additionally, Pfizer's wide moat looks secure, buoyed by a very diverse drug portfolio with strong pricing power.

In the quarter, total sales were operationally flat, as increased generic competition offset new product growth. And while we expect this trend will continue through 2017, Pfizer should return to growth in 2018. We expect the strong growth from cancer drug Ibrance (up 67%) will continue, led by gains outside the U.S., where the new drug generates only 15% of the current sales. While competition is increasing from Novartis and Eli Lilly, we believe the drug's first-mover advantage will solidify its market leadership. Beyond Ibrance, the growth outlook is solid for cardiovascular drug Eliquis (up 52%) based on a leading efficacy and side effect profile. These two drugs represented over 10% of Pfizer's current sales and have patent protection through 2023, possibly longer.

While the pipeline is not as strong as the firm needs to generate robust growth, new drugs are developing and should help offset patent losses and support total sales growth of 3% in 2018.