takes a beating the day after the company announced a deal to hand out a division that makes older medicines
the generic medicine manufacturer.
The Pfizer stock (ticker: PFE) fell 3.8% on Monday, and was down another 5% on Tuesday morning as analysts began to weigh in. Despite the initial enthusiasm of some analysts over the weekend, Tuesday's filings were lukewarm at 4 p.m. best.
Bank of America
/ Merrill Lynch and Morgan Stanley both prioritized the stock, while UBS analyst Navin Jacob who maintained a neutral rating asked if the spinoff was “2-3 years late. ”
In notes repeating Barron's Monday afternoon report, analysts wrote that after the spinoff, lower earnings mean that the stock will be far more expensive at today's price.  "In the end, we think PFE's decision to spin up the Upjohn unit is strategic," wrote Bank of America / Merrill Lynch analyst Jason Gerberry . "However, for the PFE stock to work, RemainCo will have to trade over 18x forward multiple of EPS that we consider unlikely given today's portfolio mix."
A spokesman for Pfizer said that after the agreement, Pfizer would be smaller, with a focus on biopharmaceuticals and a strong pipeline. "As a result, our product portfolio and pipeline will more easily move the needle in terms of growth impact given our smaller size," the spokesperson wrote in an email. "In addition, we will continue to have a very strong balance sheet with solid credit rating."
The back story. On Monday, Pfizer announced that it was spinning by a division called Upjohn, which produces older brands such as Lipitor and Viagra. Upjohn will merge with Mylan (MYL), the company best known for marketing EpiPen, in a share price. After the spinoff, Upjohn will pay $ 12 billion to Pfizer. Pfizer's shares were down on Monday, while Mylan had an increase of 12.6%.
What's new. The analyst reports downgrading Pfizer on Tuesday both emphasized the revenue that would come with the spinoff.
"We downgrade PFE to neutral based on our updated [sum of the parts] valuation, including expected dilution from Upjohn spin merger … and valuation prospects for RemainCo," Bank of America / Merrill Lynch's Gerberry wrote. Gerberry downgraded the company to Neutral Buy, lowering its price target to $ 41 from $ 49.
Morgan Stanley analyst David Risinger warned that revenue concerns were deeper than the spinoff. "Although we see the Upjohn exit to MYL as a strategically sound deal, new management disclosures in 2020 revealed revenue strength much weaker than we realized, "he wrote. He downgraded the stock to equal weight from overweight, and lowered its price target to $ 40, from $ 48. ] JP Morgan analyst Chris Schott wrote that the stock is trading at about 18 times the revenue per share he projects for the company for 2020. “We see this multiple as quite expensive (especially in relation to peers) and maintains our neutral rating, "he wrote. Schott's share price target is $ 46.
Looking ahead. Stocks still plunged Tuesday morning as investors struggled with the implications of the deals and mulled the valuation they could become comfortable with the stock.
Meanwhile, the stock tumble has currently wiped out the year-over-the-year gain. Shares closed at $ 39.93 July 31, 2018; the stock traded at $ 39.27 on Tuesday morning.
Write to Josh Nathan-Kazis at email@example.com