A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to focus on a leading global biotechnology company in its 164th year: Pfizer Inc. (NYSE:PFE) Incorporated .
The Business:
Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, but also allows them to spot trends that may go unnoticed by unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. Pfizer is a global biotechnology company operating in five main segments: primary care, specialty care and oncology, established products and emerging markets, animal health and consumer healthcare, and nutrition. Based on market capitalization, the company is valued at $200.92 billion. The company’s strong business model and pricing power results in Pfizer possessing a profit margin of 41.91%.
Strengths:
- Steady Revenue Growth: In 2007, Pfizer reported revenue of $48.40 billion; in 2012, the company announced revenue of $58.98 billion, representing year over year annual growth of 4.03%, a trend that is expected to continue well into the future, with projections placing 2017 revenue around $68 billion
- Dividend: Presently, Pfizer pays out quarterly dividends of $0.24, which when annualized puts the dividend as yielding 3.52%
- Diversified Product Portfolio: Pfizer’s consumer healthcare division includes brands such as Advil, Caltrate, Centrum, Chapstick, Robitussin, and Thermacare; the company’s nutrition segment includes brands such as Illuma, Progress Gold, Promil Gold, Promise Gold, S-26 Gold, and SMA Gold; the animal health division includes Convenia, Excenel, Fostera PCV, Imporvest, Revolution, and West-Nile Innovator; and the company’s biotechnology segment includes Prevnar, Lipitor, Celebrex, Sutent, Lyrica, Detrol, and Premarin; and this diversified product portfolio gives investors a greater level of predictability and security
- Institutional Vote of Confidence: 68.05% of shares outstanding are held by institutional investors, displaying the confidence some of largest investors in the world have in the company and its future
- Relatively Low Volatility: Currently, Pfizer holds a beta ratio of 0.72, representing a company trading with slightly less volatility than the overall market, a major upside for long-term investors
Weaknesses:
- High Valuation: Presently, Pfizer carries a price earnings ratio of 21.66 and a price to sales ratio of 3.41, both of which indicate a company trading with a relatively high valuation
- Net Debt: Despite possessing $4.50 billion in cash and cash equivalents on their balance sheets, the company’s debt load of $31.08 billion results in a net debt of $26.58 billion, a rather substantial weakness
- Negative Free Cash Flow: According to the company’s most recent quarterly filing, the company possesses a negative free cash flow position of $10.96 billion, a major weakness for investors
