Morgan Stanley’s Bush-Whacking of Pfizer

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

If President Bush didn’t have enough on his hands with John Kerry, Dan Rather, Jacques Chirac, Osama bin Laden, Kofi Annan, and those Iraqi insurgents, he’s now got a new adversary – Morgan Stanley.


It all centers on Mr. Bush’s portfolio, notably pharmaceutical biggie Pfizer, one of the president’s stock holdings held in a blind trust, whose shares Morgan Stanley has just downgraded.


Pfizer, whose product portfolio includes such well known brands as Lipitor, Viagra, and Zoloft, is one of those actively traded Wall Street darlings rife with buy recommendations throughout the brokerage community. In opposition, one-time Pfizer fan Morgan Stanley, judging from its latest analysis, thinks the bulls may have been drugged by the drug company.


In a just-issued report, Morgan Stanley slams Pfizer, which it had been touting as a market outperformed, based on its recommendation that investors overweight the shares in their portfolios. No more, though. It has now chopped its investment ranking, asserting that “a series of setbacks has weakened our conviction.”


In brief, it lowered its bottom-line projections for the next several years, reduced its 12-month price target for the stock from $42 to $37 and challenges what it believes are management’s overly optimistic earnings and revenue guidance.


Indicative that Morgan Stanley is not alone in its concern is the performance of Pfizer shares, which have tumbled from their 52-week high of $38.89 to their year’s low of $29.50. They closed Friday at $29.66, down 16% from their 2003 close of $35.33. Clearly, Morgan Stanley, given its clout with institution al investors, could well cast a further cloud over the stock, perhaps leading to some selling, and shrinking the president’s net worth somewhat.


Analyst James Rubin said he downgraded Pfizer because of his waning conviction in the company’s ability to maintain industry average growth in 2005 and beyond. He notes, too, that in the past two months Pfizer has issued disappointing news with regard to its revenue outlook for 2004 and beyond.


Included in the ill tidings was the government’s conditional approval of Lyrica for three uses, but not to treat generalized anxiety disorder, and continued uncertainty about the timing for generic competition to Neurontin, a Pfizer treatment for epilepsy.


While the analyst acknowledges that several things have gone well for the company this year, such as Lipitor growth and the defense of its Norvasc drug, management execution has been decidedly mixed. Further, he adds, with his renewed forecast for revenue growth slipping to mid-single digits, it is increasingly difficult to justify a case as to why the stock should meaningfully outperform its peers. (In 2006-07, Pfizer is expected to lose patent exclusivity for a group of products that generated $7.5 billion, or 16%, of sales last year, not including Neurontin).


Intensifying competition on Pfizer’s key brands, such as Lipitor, Zoloft, and Viagra, also worries Mr. Rubin, as does his belief that the anticipated lift in the return on invested capital will fall short of expectations.


As a result of these factors, the analyst has reduced his revenue forecast to $52.1 billion, which is below management’s guidance of $52.5 billion to $53 billion. He also takes issue with management’s earnings guidance of $2.13 a share. His estimate: $2.07. Chiefly responsible for his below-consensus estimate this year is his expectation that Neurontin will face a full quarter of generic competition in the fourth quarter.


Many pros rate Pfizer a cheap stock. Mr. Rubin agrees, noting that the shares sell at only 15.5 times his 2004 earnings estimate and 14 times his 2005 forecast of $2.30 a share (which represent a discount to the S &P 500 of 9% and 15%, respectively). The stock’s poor performance already reflects many of the setbacks, Mr. Rubin concedes, but cheapness, he argues, doesn’t mean the stock will outperform its peers.


So, as far as a position in your stock portfolio goes, the analyst feels Pfizer should only be accorded an equal weighting, which is like someone touting you on a stock that you’re told might go up or might go down.


If that’s not bad enough for Mr. Bush, Deutsche Bank got into the act last week by downgrading Cisco Systems, another stock owned by the president. For Mr. Bush’s sake, let’s hope the Street doesn’t turn sour on Wells Fargo, Disney, or the Gap, three more of his stock holdings.


The New York Sun

© 2025 The New York Sun Company, LLC. All rights reserved.

Use of this site constitutes acceptance of our Terms of Use and Privacy Policy. The material on this site is protected by copyright law and may not be reproduced, distributed, transmitted, cached or otherwise used.

The New York Sun

Sign in or  Create a free account

or
By continuing you agree to our Privacy Policy and Terms of Use