What Ails Pfizer

If there is one stock I had to hold for the next two years it would be Pfizer. I am currently short the March 18 Puts and the April 17's, so it is likely that I will soon be a shareholder. The company is supposed to earn $2.20 a share this year putting them at 8 times earnings.

The $2.20 a share in estimated earnings for Pfizer actually understates their earnings power because their tax rate is unnaturally high. They are repatriating money from their overseas divisions in order to help pay for their Wyeth acquisition. Without repatriating that cash their earnings would be closer to $2.40 a share and Pfizer is closer to 7 times earnings.

Most companies do not repatriate money because the US government taxes it.  Instead they leave the money overseas and borrow domestically. Initially that makes EPS appear higher but then they are left paying interest on money they already have. Over time they end up paying a lot more money in interest than they would have paid to the US government.

Analysts have frowned on Pfizer's decision to repatriate money and have had to lower their EPS estimates as a result. But there is a major conflict of interest. It is those same investment banks that the analysts work for that would have done the bond sales if Pfizer chose not to repatriate money. If more companies chose to do what Pfizer did investment banks would lose a lot of revenue.

Click here for Part 2


Anonymous said...

Tsachy, I have a couple quick questions If you don't mind.
Does it cost anything to create/maintain a blog on this site? How many daily visitors do you average? Thanks for any info. I don't have a lot of free time but was considering creating something.

Tsachy Mishal said...

It costs nothing.
800 hits a day plus 60 RSS subscribers.