I thought I was finished with the post-Pfizer analyst meeting reaction with yesterday's post, but when an extraordinarily bearish 77-page research note from Credit Suisse big pharma analyst Catherine Arnold arrived in my inbox this morning, I had to do one more installment.
In the note, Arnold names names. She thinks Pfizer should buy Wyeth or Amgen . Quite some time ago, Deutsche Bank analyst Barbara Ryan had suggested Pfizer look at Amgen as well.
Arnold claims Pfizer has four choices:
1. Go it alone.
2. Do a big deal.
3. Do a bunch of small deals.
4. "Divest, or even become an acquisition target." (I put the fourth choice in quotes to make clear it's a direct quote from Arnold's note.)
Arnold argues that a big deal offers the clearest path toward a higher share price. By Arnold's calculation, "PFE value is $29 with a Wyeth deal (and average synergies) and $26 with Amgen." She says a Wyeth deal would add to earnings in the first year and an Amgen deal would boost profit in the second or third year.
The word she uses is "accretive," but I don't like that Wall Street word or the opposite one, "dilutive." In plain English, a deal adds to or subtracts from earnings. Arnold also names six other biotechs and eight "specialty pharmaceutical" companies that passed her team's screening process as potential PFE targets: Biogen Idec , Celgene , Cubist , Genzyme , Gilead Sciences , United Therapeutics , Allergan , Cephalon , Endo Pharmaceuticals , Forest Laboratories , Medicines Co. , Sciele Pharma , Sepracor and Shire Pharmaceuticals .
If PFE doesn't make a big buy, Arnold believes the attractive dividend is at risk. At the analyst meeting, Pfizer's CFO said, "Barring a significant unforeseen event of size," the dividend can be maintained "at least at current levels."