Pfizer, PMI and Cisco Report Solid Earnings

Pfizer reported GAAP earnings of $0.43 per share in the most recent quarter. GAAP is the benchmark I feel we should use GAAP as a starting point for understanding a company's earnings performance. But a lot of companies have factors that would skew this result. Pfizer is one such example because the company acquired several large companies, most notably Wyeth in 2009. Acquisitions affects the company's earnings because of the marked value of inventories from acquired companies. Pfizer explains away such purchase accounting with a adjusted income value. Pfizer's adjusted income is $0.53 a share. I give Pfizer the benefit of the doubt and use this figure for Pfizer's income. I then estimate Pfizer trades at a PE of 13 (current price divided by adjust income). In addition, Pfizer has saved more than $7 billion in each of the last two years due to synergies from their acquisitions. Pfizer's report does not state how much it can save in the future but I hope that these savings can bring the company's PE close to 10 in the next two years. So to summarize, PFE is nothing too fancy, just a solid performer in a lucrative industry. I have a long term hold on it.

Philip Morris International (PM) recently announced that it earned $5.17 per share for the most recent year. This is an increase of 7% over a year earlier. The company has a 3.7% dividend yield. But as it trades at $91, it's PE is getting close to 20. And to me that is getting close to overvalued territory. As I mentioned before this is a sea change in opinion from a little more than a decade ago, when the market thought tobacco companies were getting sued to oblivion. I have sold a bit here and there as PM rose above 60. I will sell more if it goes above $100.

Cisco is another stock that has experienced a sea change of opinion in the last decade. The market once made it the most valuable company in the world. Now, the company just announced that it earned $1.49 GAAP per share last year. This gives it a PE of 14 with and a net-net of $4 per share. I consider it a value investment at this price. Cisco is my fifth largest holding mainly because of legacy positions and recent purchase as a value play. I would like to close my position however if it gets from $21 today to around $25; I generally do not like tech investments.