A better-than-anticipated second-quarter 2017 non-GAAP earnings of $4.063 billion, or $0.67 per share, on revenues of $12.896 billion triggered a rally in the stock of pharmaceutical giant Pfizer Inc (NYSE: PFE) in late August. However, the stock remained range bound between $35 and $36 in September. Last week, Pfizer announced its intention to divest the consumer healthcare portfolio, and focus on core business. We expect the market to reward the company’s plan by pushing the share price upwards in the near future.
The New York-based Pfizer is willing to consider a total or partial sale of its consumer healthcare business, according to a Reuters report. The company is also looking at the prospects of spinning off its consumer healthcare division, which include painkiller Advil and Thermacare, lip balm Chapstick, dietary supplements Caltrate, Centrum, and Emergen-C, gastrointestinal drugs Preparation H and Nexium 24 Hour, respiratory products Advil Cold, Sinus and Robitussin, and several other over-the-counter medicines and personal care products.
In fiscal 2016, Pfizer realised revenues of $3.40 billion from consumer healthcare division. On that basis, industry experts believe the consumer healthcare division will fetch as much as $14 billion. Advil and Centrum are two of the top-selling consumer brands. Furthermore, Pfizer’s consumer healthcare portfolio includes 10 brands which generated revenues of over $100 million in 2016.
The list of companies which might be interested in the deal are Reckitt Benckiser, PG, Abbott, JnJ, and GlaxoSmithKline. Notably, German company Merck is also interest in divesting its non-prescription products, which include brands such as Seven Seas vitamins. Nestle is also believed to be another prospective buyer of Pfizer’s consumer healthcare portfolio. Bayer and Sanofi are occupied in their merger deal with Monsanto and Boehringer Ingelheim, respectively. Thus, analysts do not expect them to express interest in Pfizer’s consumer healthcare portfolio.
With a successful divestment, Pfizer, which failed in its attempt to acquire Dublin-based Allergan and Sweden based AstraZeneca, may stir up the merger and acquisition deals in the pharma sector. Notably, in 2006, Pfizer had sold its consumer healthcare business to JnJ for $16.60 billion. However, the company got a new portfolio of consumer healthcare products with the acquisition of Wyeth in 2010. The company had also spun out its animal health division in 2013. The spun off company, known as Zoetis, is now worth $31 billion.
Pfizer has hired Guggenheim Securities, Morgan Stanley, and Centerview Partners as financial advisers for the divestment deal. Pfizer will be able to concentrate on its core drug offerings after the planned divestment. Thus, fundamentally, the stock is expected to rise on the basis of this announcement.
The stock is moving along the ascending trend line support, as shown in the image below. Furthermore, the CCI indicator is rising, with a reading above 100. On the upside, the stock is expected to face resistance at 38. Thus, it would be wise to hold a long position in the stock.
A call option is an ideal instrument to benefit from the forecast. A time period of one week should be chosen for the expiry of the contract. Additionally, we wish to enter only when the stock trades near $35.50 in the NYSE.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.