In Wake Of Medivation Deal, Argus Thinks Pfizer's Existing Business Is Underrated

On August 22, Pfizer Inc. (NYSE: PFE) announced it had entered into an agreement to acquire Medivation Inc (NASDAQ: MDVN) for almost $14 billion or $81.50 per shares.

Argus’ Jacob Kilstein maintains a Buy rating on Pfizer with a price target of $39.

The Acquisition

Kilstein mentioned the acquisition price represented a 120 percent premium to Medivation’s share price in March, prior to speculations of a potential buyout.

“Medivation has been pursued in recent months by a range of companies seeking to acquire its leading prostate cancer drug, Xtandi,” the analyst stated.

Related Link: Pfizer's $1.5 Billion Antibiotics Buy: Strategic Long-Term Planning Or Pre-Split Prep?

Xtandi generated sales of $2.2 billion over the last four quarters, and management expects the sales to grow to $5.7 billion in 2020.

Going forward, Kilstein expects Pfizer to make smaller deals to bolster its product pipeline, similar to the Medivation deal.

Underrated Business

“Meanwhile, Pfizer will continue to focus on its existing pharmaceuticals business, which we view as underrated. The company has strong sellers in Prevnar and Ibrance, and could separate its new drug and established drug businesses in an effort to boost shareholder value,” the analyst noted.

The analyst believes Pfizer’s stock buyback program and attractive dividend yield of 3.5 percent add to the total return potential.

While announcing the company’s Q2 results, management reiterated its adjusted EPS guidance for 2016 at $2.38–$2.48 on revenue of $51–$53 billion.

The EPS estimates for 2016 and 2017 have been raised to reflect the expected contribution from acquisitions.

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