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Tickers in this Article: PFE, ZTS, NVO, TEVA
Pfizer Inc. (PFE) now no longer has a stake in Zoetis, Inc. (ZTS), its former animal health business. Pfizer said that its exchange offer under which shareholders were given the option to exchange all, some or none of their shares of Pfizer common stock for shares of Zoetis Inc. was oversubscribed.

With the exchange offer being oversubscribed, Pfizer accepted a part of the validly tendered shares on a pro rata basis. The company currently expects about 24% of the tendered shares to be exchanged.

We remind investors that Pfizer had an 80.2% interest in Zoetis, which started trading on the New York Stock Exchange from Feb 1, 2013.

Guidance Updated

Along with announcing the expiry of the exchange offer, Pfizer lowered its outlook for 2013 to reflect the impact of the divestment of the remaining stake in Zoetis. The company now expects to earn $2.10 - $2.20 per share on revenues of $50.8 to $52.8 billion instead of $2.14 - $2.24 per share on revenues of $55.3 to $57.3 billion. The Zacks Consensus Estimate for 2013 currently stands at $2.21 per share. We expect downward revisions in 2013 earnings estimates given the company’s revised outlook.

Cost of sales is now expected to be 18%-19% instead of 19%-20%. Outlook for both SI&A and R&D expenses has been reduced. While SI&A expenses are now expected to be $14.2 to $15.2 billion (old guidance: $15.6 to $16.6 billion), R&D spend is now expected in the range of $6.1 to $6.6 billion (old guidance: $6.5 to $7.0 billion). The company expects adjusted other (income)/deductions of about $800 million, down from the earlier guidance of $900 million.

We are positive on Pfizer’s decision to spin off its animal health business as it will enable the pharma major to focus on its core business. Pfizer expects the spin off to be earnings accretive in 2014.

Pfizer currently carries a Zacks Rank #4 (Sell). Shares were down 2.64% at market close yesterday. The share price decline was most likely in reaction to the lowered earnings and revenue outlook for 2013.

We note that Pfizer also lost EU exclusivity on its erectile dysfunction drug, Viagra. Generic versions of Viagra were launched in the EU recently by companies like Teva (TEVA). According to IMS Health, Viagra sales were €382.2 million in Europe for the 12 months ending Mar 31, 2013.

Among large-cap pharma companies, Novo Nordisk (NVO) currently looks well-positioned with a Zacks Rank #2 (Buy).

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