When thinking of major drug manufacturers, the company Pfizer tends to control both the conversation and thought. With a strong reputation, Dow recognition, and a market capitalization near 130 billion dollars, the excitement over this company is understandable. Nevertheless, while Pfizer may be a more recognized house-hold name, another drug manufacturer, Wyeth (WYE), may actually support better fundamentals and potential when compared to this industry giant. Thus, as there are always capital gains to be earned from all industries, I believe, after examining this major specific industry, Wyeth holds tremendous potential for increased shareholder optimism.
While it may be true that the new Democrat Congress may inflict some unlikable policies against these businesses, relative to what Wyeth produces, there is still a tremendous opportunity of growth over the long term for this company. Per Yahoo! Finance, “Wyeth engages in the discovery, development, manufacture, and marketing of pharmaceuticals, vaccines, biotechnology products, and nonprescription medicines.” Having a strong vertical control over the process of developing and marketing, with the upcoming baby boom generation nearing the age of retirement, coupled with the continued need and the unlimited desire to fulfill the many diseases and illnesses across the globe, the future of Wyeth can be agreed upon as a bright one. In addition, with over 40 companies listed as major drug manufacturers, along with even more labeled as other drug manufacturers, there will be tremendous competition for further growth, and only the companies with a strong management team which can produce strong fundamentals will prevail. Luckily for Wyeth, the company incorporates both of these aspects.
Speaking in terms of fundamentals, over the last fiscal year Wyeth has performed quite marvelously relative to its peers in the industry. Supporting revenue growth over 10% quarterly and earnings growth close to 17%, the management team led by CEO Robert Essner has allowed sales to continue to grow strong while managing to cut costs (Capital IQ). When comparing these numbers to some of Wyeth’s competitors, it is clear that this company stands out. For example, close rival Eli Lilly & Co. could only manage a revenue and earnings quarterly growth increase of 9% and -81% respectively. Nevertheless it is true contested rival Pfizer has been able to allow for a strong 240% increase in earnings, but with a revenue growth rate below zero, the lack of sufficient sales will severely overplay the exaggerated net income performance. Returning back to the management utilization, Wyeth, over the past year, has been able to bring in an ROE of close to 32%. Not only does this number beat the industry average of 22%, but the number beats its competitors, Novo Nordisk (23%), Pfizer (16%), and Eli Lilly (22%), numbers as well. As I believe the ROE is one of the most important attributes to examine when trying to scrutinize a company, it is clear that Wyeth is lead by strong personnel who, in addition, are able to put up a twelve year profit margin of 20%, only below the aforementioned Pfizer because of reasons stated earlier. Furthermore, what I believe to be the most important component when deciding to purchase a stock, the P/E ratio, also is highly praised for this company. Wyeth, with its near 13 earnings forward multiple, controls the industry which has a multiple staggering around 20. In addition, when compared to some of the highly regarded competitors, Wyeth’s number easily beats out Eli Lilley’s forward multiple of 15 and Novo Nordisk P/E ratio of 19.5. While Pfizer does have a smaller number at 11, it is important to understand that the trailing multiple for Pfizer is also lower than the more important forward earning ratio, complementing the fact that shareholders will not be to optimistic with decreasing EPS estimates and lower guidance reports. In terms of other important multiples, Wyeth does provide some low ratios with its enterprise value to revenue (3.40), enterprise value to EBITDA (11.25), and price to sales (3.35). When compared to Eli Lilley’s respective numbers of 3.89, 12.08, and 3.81 or Novo Nordisk’s trailing respective numbers of 4.26, 15.25, and 4.35, it is clear that Wyeth’s fundamentals do tend to indicate that this company is undervalued relative to its price. In addition, Wyeth’s PEG ratio over the next five years at 1.85 is also quite lower than both Eli Lilley and Pfizer. Moreover, over the most recent quarter, Wyeth has had a dominating cash per share number of over six, which is three times the same indicator of Pfizer, regardless of the latter’s recent cash supremacy. Therefore, as proven by the fundamentals, Wyeth has tremendous value not just over the industry but over its highly touted rivals as well.
All the aforementioned being said, some investors may still be cautious when examining how close Wyeth is to its 52 week high. While it is true many of the fundamentals presented were over the basis of the past twelve months, there are still many indicators leading me to believe that this company is in store for a strong fiscal year. As both the forward P/E ratio and PEG are below industry standards, and the management team has proven their competence, 2007 should be a continued evolution upon the given numbers in the positive direction. As the beta of Wyeth is slightly below 0.3, and the S&P 500 is looking for another strong year with the pleasant economic data set forth, Wyeth should have no problem reaching positive territory for most investors who purchase shares. Furthermore, with a current share price below the 50 day SMA and short ratio near three (higher than most other competitors), now would be a near ideal time to become a shareholder of this company. Thus, after going through the given fundamentals and comparison to both the industry and its rivals, as an investor, you should absolutely feel much more confident to garnering some of your capital into Wyeth.