3% is in the middle.
These figures indicate that Pfizer's returns are about average. Aside from an unusually good year in 2007 with respect to their returns, the company is rangebound in terms of its managerial efficiency. Recapturing the 2007 successes would be more encouraging but at present there is little to indicate a long-term trend of improved returns on either equity or assets.
Analysis
Pfizer's performance in the past five years has been uninspiring. The firm has been relatively stationery, especially with respect to revenues. Their business seems to be maturing as well, supported by the fact that the company has steadily increased its dividend. Indeed, without top line growth to attract investors, Pfizer has little choice but to increase the dividend in order to stem the sale of the firm's stock.
Pfizer stock has suffered more than would be expected given the firm's beta. There are two industry factors that make this especially alarming. The first is that pharmaceuticals are demand inelastic, both in terms of price and in terms of the economy. These drugs are a quality of life issue for many, so demand should not fall in light of a financial crisis. Indeed, Pfizer's revenues have remained constant through the crisis. Therefore, the damage to the firm' stock is not related to the market overall.
Rather, it is likely related to concern in the industry with respect to the impact of possible health care reform, and with respect to the skyrocketing cost of drug trials resulting from stricter FDA guidelines. Pfizer also carries some firm-specific issues that have damaged its stock. The company has not been able to increase its revenue over the past five years. Operating income has declined in that period, as has the firm's asset base and the book value of its equity. At best, Pfizer is holding steady; at worst it is shrinking.
This has taken all growth components out of the firm's stock. Management...
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