Pfizer Left at the Altar by AstraZeneca
Pfizer Inc. (PFE, $29.25) and AstraZeneca (AZN, $72.20) have ceased negotiations for a potential takeover by Pfizer. AstraZeneca’s board considers the $117 billion buyout offer to be too low. Pfizer does not intend to pursue a hostile bid.
Pfizer’s stock does not earn a buy recommendation at Goodfellow LLC because its earnings growth is far too slow. Wall Street currently expects the company’s 3-year compounded earnings growth rate to be 2% per year.
The share price is much lower than it was at the millennium, most recently resting after a two-year climb. The stock has been trading between $29-$33. The price got weaker this month with the prospect of purchasing AstraZeneca, but it did not rebound on the news that the takeover will not happen.
Since the stock has barely any earnings growth, there’s no reason to expect it to rise. If I owned PFE shares, I’d put in a sell order at $31 and be done with it.
Goodfellow LLC Rating: Sell, Public. (05-20-14)
Scroll down for additional commentary on AstraZeneca’s stock.
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AstraZeneca’s earnings per share are projected to fall in 2014 & 15. As such, this company also does not merit a buy rating at Goodfellow LLC.
The stock broke through long-term upside price resistance in the mid-$60’s in February, then shot up another $12 on news of the Pfizer bid. My readers know that I almost always recommend selling shares under such scenarios, because it’s quite unlikely that the stock price will climb again any time soon. But there are several reasons why the stock could fall back down, or stagnate for many months. So the odds are not with the shareholders. When buyout offers arise, my rule of thumb is “take the money and run”.
So you still own AZN shares? I’m sorry. Here’s what I would do if I owned them today: I would sell them right away. I see no reason to own a stock with falling annual earnings.
We invest in stocks to achieve capital gains. We will have better odds with companies that have healthy balance sheets, growing earnings, and bullish charts. There’s no reason to consider owning stocks that don’t meet those three criteria.
Goodfellow LLC Rating: Sell, Public. (05-20-14)
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Crista Huff
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