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Pfizer (PFE) and Delta Air Lines (DAL): Growth & Income Stocks

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Pfizer Inc. (PFE - Free Report) , a Zacks Rank #2 (Buy), is a research-based, global pharmaceutical company that discovers, develops, manufactures, and markets medicines for humans. The Company's diversified global healthcare portfolio includes human and animal biologic and small molecule medicines and vaccines, as well as nutritional products and consumer healthcare products. It sells its products to wholesalers, distributors, retailers, hospitals, clinics, government agencies, pharmacies, individual provider offices, and grocery and convenience stores.

In its most recent reported quarter, Q4 18, the company easily beat both the Zacks consensus earnings and revenue estimates.  Pfizer posted year over year gains in revenues +1%, adjusted income +30%, and adjusted diluted EPS +32%.  The report also showed that the company’s tax rate would fall from 23% to about 17%, and that management approved a $5 billion share repurchase program.  Further, during the conference call management alluded to future consolidation within the segment along with several partnerships. 

The company’s innovative business segment, branded drugs, vaccines, and consumer health, grew by +8% YoY with direct sales revenues improving by +47% YoY.  The big drivers behind the success of the innovative segment was Eliquis, oral anticoagulant prescribed by cardiologists, Xeljanz, used for moderately to severely active rheumatoid arthritis, and Prevnar, a pneumonia vaccine. 

Looking ahead, besides its legacy branded drugs, the company has a strong pipeline of new products focused on oncology, and biosimilars (generic drugs).  One of the most exciting new drugs is Ibrance, a new treatment for breast cancer that is expected to generate almost $6 billion in annual sales by 2020. 

Towards the end of 2017, management approved a +6.3% increase to its quarterly dividend, making the new annual dividend $1.36, or a +3.7% annual yield.  Pfizer has paid an annual dividend since 1901, and has increased it for the past nine consecutive years.  Moreover, the company is expected to use its tax savings to further increase its share repurchase program, and boost its dividend payments for the next several years. 

This strong earnings report, and positive future outlook has caused analysts to increase their earnings estimates for the next two quarters and next two fiscal years as you can see in the table below.

Delta Air Lines Inc. (DAL - Free Report) , a Zacks Rank #2 (Strong Buy) is a major American airline with its headquarters on the northern boundary of Hartsfield-Jackson Atlanta International Airport, within the city limits of Atlanta. Delta started operation by crop dusting and flying mail and then introduced passenger service. Delta's business is focused on making global connections, flying people and cargo throughout the United States and around the world. Delta Air Lines offers customers service to more destinations than any global airline with Delta and Delta Connection carrier service. Delta Air Lines and the Delta Connection carriers offer service to nearly 370 destinations on six continents. Delta has added more international capacity than all other U.S. airlines combined and is the leader across the Atlantic.

In the company’s most recent quarter, they beat the Zacks consensus earnings and revenue estimates for the second consecutive quarter.  The report showed that revenues were up +8.3% overall with domestic up +7%, total passenger improving by +6.6%, cargo rising by +14.4%, and other revenues gaining +17.9% YoY.  Earnings Per Share improved by +17.1% YoY.  The big jump in other revenues was due to several key areas; club and on-board sales, administrative fees, loyalty programs, ancillary businesses, baggage fees, and refinery. 

Another tailwind for the company is their co-brand partnership with American Express as Delta gets the interchange fee.  In 2017, the Delta AmEx card portfolio realized $80.9 billion in charges where $1.975 billion in EBIT went to Delta.  This is expected to increase to $2.7 billion by 2020 due to the contractual increase in the price per mile Delta gets from AmEx.  Further, the whole partnership deal with AmEx generated $3 billion in revenues in 2017, and this is expected to increase to $4 billion by 2021 (the contract goes through 2022). 

Looking forward, management guided 2018 EPS in a range between $6.35-6.70, well above its previous guidance of $5.35-5.70.  This boost is mostly due to the tax reform plan which by itself is expected to benefit EPS by $1.00-1.25.  For Q1 18, management guided EPS at $0.65-0.75, and increased Revenue Per Available Seat (RASM) expectations from 2.5-4.5% YoY to 4-5%.  The rise in RASM is due to improvements in both leisure, and business travel. 

The increase in 2018 EPS guidance and upgraded Q1 18 RASM expectations caused analysts to positively revise estimates for FY 18, and FY 19.  Further, the stock price has continued to move upwards since the beginning of 2016.  You can see both of these improvements in the Price and Earnings consensus graph below.

Price and Consensus

Price and Consensus | Quote

During the December quarter the company repurchased $325 million worth of stock as part of its $5 billion share repurchase program announced in March of 2017.  The company also pays a solid annual dividend yield of +2.16%.

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