Will The New Pfizer Be A Winner? SunTrust Analyst Thinks So, Upgrades Stock

• Pfizer Inc. PFE shares have been under pressure through the past month, and are down 4 percent since October 26.
• SunTrust Robinson Humphrey’s John T. Boris upgraded the rating on the company from Reduce to Neutral, while raising the price target from $34 to $37.
• The deal with Allergan PLC AGN makes strategic sense and could boost Pfizer’s growth, Boris said.

The deal with Allergan makes strategic sense, and provided Pfizer with “a much needed injection of growth from earlier life cycle assets with limited therapeutic overlap,” analyst John Boris said.

He added that Allergan’s assets help to “slow the drag on growth” from more than $15B in high margin losses of exclusivity and stiffening competition to recently launched assets

Boris believes that the Allergen deal right sizes Pfizer’s US versus Ex-US sales mix, taking the ratio from 44:56 percent to 61:39 percent for the NewCo. This would restore some pricing power.

The analyst said that the deal would need to translate into significant topline synergies from Allergen’s business segments that are:

1. Largely domiciled in the US - representing about 85 percent of total sales
2. Have limited overlap with Pfizer’s existing business segments
3. Require investment to ensure new product launches & pipeline assets are adequately funded

Pfizer is targeting merely $2B in operational synergies, below Street expectations. This pushes out accretion into the out years. Consequently, the ROI “barely clears” Pfizer’s estimated cost of capital in 2020.

Boris mentioned that the 2017-2021 estimates for the NEWCO sales and EPS CAGRs are 3 percent and 12 percent, versus the estimate for standalone Pfizer of 1 percent and 6 percent, respectively.

“As a result of the improvement in the NEWCO’s growth profile vs. stand-alone PFE we are upgrading the stock to Neutral from Reduce,” the SunTrust report added.