Pfizer (PFE - Free Pfizer Stock Report), reported third-quarter results Tuesday morning and easily exceeded expectations. The world's largest drugmaker posted earnings of $0.48 a share, surpassing our estimate of $0.27, and up considerably from $0.11 in the comparable period of 2010. Higher sales and lower charges helped drive the significant bottom-line gain. Meanwhile, the stock was up nicely in early morning trading in a sharply lower market.

Specifically, revenues rose 7% to $17.2 billion, supported by strong demand for the popular, cholesterol-fighting drug, Lipitor. The company's best-selling product saw sales jump 3% to $2.6 billion during the quarter. However, Pfizer is scheduled to lose U.S. patent protection for the drug on November 30th. Increased generic competition will likely cut substantially into sales in the coming years.

In order to prepare for the loss of U.S. exclusivity for Lipitor, management continues to focus on maintaining a leaner cost structure while efficiently investing in the pipeline. Research and Development costs in the third quarter were trimmed 6% year over year, to $2 billion. Despite declining input, several drug prospects have shown promise in late-stage studies, indicating the company is starting to make strides in preparing for the post-Lipitor era. Though this is encouraging, we believe it is unlikely their top-line contributions will be enough to fully mitigate the impact of patent expirations in the near term. As such, we look for sales to trend downward in the coming years.

As a result of the strong third-quarter showing, management has increased its full-year guidance. The company now expects share-earnings to be in the range of $1.20-$1.30, up from $1.09-$1.24. Revenue projections were narrowed from a range of $65.2 billion-$67.2 billion, to $66.2-$67.2 billion.

All told, we are raising our 2011 earnings estimate by $0.15 a share, to $1.30. Although sales will likely be materially lower than in 2010, we believe management's cost-cutting efforts will be enough to drive profits in 2011. In our view, Pfizer remains a strong company with solid fundamentals and a good market position. Conservative investors may find interest in the stock's high scores for Safety (1: Highest) and Price Stability, as well as its low Beta and generous dividend yield.

About The Company:Pfizer is a major producer of pharmaceuticals, hospital products, consumer products, and animal health lines. Important product names include Norvasc (cardiovascular); Zoloft (antidepressant); Zithromax (antibiotic); Lipitor (cholesterol); Aricept (Alzheimer’s); Cardura (cardiovascular); Diflucan (antifungal); Zyrtec (antihistamine); Viagra (impotence); and Celebrex (rheumatoid arthritis and osteoarthritis). International sales accounted for about 57% of total sales in 2010.


At the time of this article’s writing, the author did not have positions in any of the companies mentioned.