S&P 500: -0.89 (-0.10%)
Pfizer (PFE) +5.51%
Pfizer jumped on speculation the drugmaker may increase its dividend by mid-2010 and seek lower financing costs for its purchase of Wyeth. Pfizer’s stock had fallen 19 percent before today, in large part due to the dividend cut.
I am not entirely sure how Pfizer will get lower financing costs, but I do agree that a dividend increase is a strong possibility 12 to 18 months after Wyeth deal closes. Providing support for this argument is solid cost-cutting execution in Pfizer’s latest quarterly results, the expected revenues from the Wyeth acquisition, and robust cash flows.
Regardless of when Pfizer increases its dividend, the company is trading at a very attractive valuation with a dividend yielding over 4 percent. Pfizer’s valuation is well below its historical average, trading at just 7.7 times estimated earnings, which reflects the fact that Pfizer is no longer the growth story it was in years past.
Still, I expect Pfizer’s long trend of paying a growing dividend to continue as their robust cash flows quickly work down debt during the next few years. Whether or not they return to their growth-glory-days of the 1990s will depend on their management of a massive pipeline that is heavily-weighted towards early-phase drugs.
Principal Financial Group (PFG) -2.95%
There are few reasons to believe the investors’ appetite for exposure to the insurance industry is growing. First, Principal was able to price its shares at just a 3 percent discount, compared with the double-digit percentage discounts offered by lenders such as J.P. Morgan, Wells Fargo, and J.P. Morgan. Second, Principal managed to boost the size of the offering to just over 50 million shares from its original intention of pricing 42 million shares.
Credit Suisse estimates the $1 billion offering will dilute earnings per share by 15 percent, but the bolstering of the balance sheet is likely enough to keep any long-term overhang from inhibiting the stock.
Quick Hits
- Social Security Fund Will Be Depleted By 2037, Earlier Than U.S. Forecast
- Questions About Consumers
- Stress-Test Countdown: The Race to Market
- Soda Tax Weighed to Pay for Health Care
Peter Lazaroff, Junior Analyst
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