TAKING STOCK: Zippity-Doo-Dah for Pfizer redux?

Dear Mr. Berko:

I bought 400 shares of Pfizer at $24 in 2004 and carefully follow most of what the company does. I have been hearing that management is going to sell or spin off a number of divisions that are a drag on its earnings. Can you tell me which divisions that may be? And would you please tell me if I should sell my shares and take a loss? I thought the purchase of Wyeth would be a turnaround for the company, but I was wrong. I really appreciate your opinion.

NL in San Antonio, Texas

Dear NL:

When Pfizer (PFE-$20) decided to take over Wyeth in 2009, I also thought, "Way to go, Jeff Kindler," who was the CEO. Unfortunately, a lot of good Wyeth people left when PFE absorbed this well-managed company. And it took me almost a year to realize that PFE's management sorely lacks the knowledge, the skill sets, the experience and the commitment to seamlessly integrate Wyeth into the PFE culture. In fact, Kindler and his team were so inept and clueless that Jeff decided to resign rather than suffer the ignominy of being publicly canned.

PFE's management had no more depth than a parking lot puddle and figured they could buy their way out of the doldrums of stagnation by becoming bigger. Well, the only thing bigger gets is inefficiency and bureaucracy. Wyeth's acquisition produced the proof and paved the way for Ian Read, PFE's new CEO. Now Read and the board may sell or spin off some of PFE's smaller multibillion-dollar businesses to shareholders reducing the size of PFE by 40 percent. The following are some of the most likely candidates:

The GENERIC DRUG DIVISION, with $10.5 billion in revenues, is a poorly managed and profitless subsidiary. TEVA (TEVA-$48), the generic drug company with $17 billion in revenues that made $3.5 billion last year, is very interested. PFE's ANIMAL HEALTH business, with $3.8 billion in revenues, the $3 billion CONSUMER HEALTH subsidiary (Preparation H, ChapStick, Dristan, and Advil) and its $2 billion NUTRITIONALS business may be divested, with PFE retaining an investment stake in each. Meanwhile, PFE recently sold CAPSUGEL, a leading manufacturer of hard pills, to KKR for $2.4 billion.

Absent these niggling divisions should be a streamlined PFE that is about 95 percent prescription drugs, which are hugely profitable. It is estimated that Rx drugs bring in about 90 percent of PFE's net profits and employ about 70 percent of PFE's 111,000-member workforce.

Even with the loss of revenues from Lipitor ($13 billion in sales), the Street expects PFE to earn $2.20 a share next year and to increase the dividend from the current 80 cents to 90 cents. Meanwhile, some PFE watchers think these divestitures could be worth between $4.00 and $6.00 a share, enough to recommend that you hold your 400 shares.

Even if these divestitures do not materialize this year or next, or take longer to complete than anticipated, I still advise you to keep PFE. Ian Read has a big new broom and has been given the authority to clean out PFE's moribund and talentless executive suite. Some executive resignation letters have already been written, and pink slips to lower-level employees have been issued. More than 1,500 people from PFE's Groton campus will soon be looking for new jobs, and in the coming 12 months, some 12,000 redundant employees around the world will be looking for work.

The trend has been set. We may be looking at a new PFE with some zippity-doo-dah in its net income, enthusiasm in its stock price, and reliable and strong dividend growth.

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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Wed, Jul 13, 2011

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