Pfizer stock gains on job cuts

NEW YORK (CNNMoney.com) -- Analysts and investors are giving Pfizer the thumbs up for its job-slashing announcement.

Pfizer (up $0.20 to $27.25, Charts), the world's largest drug maker, announced Tuesday that the company would cut its U.S. sales force by 20 percent. That means that at least 2,000 of the company's 11,000 sales reps could lose their jobs.

"This is an important step toward making Pfizer a more agile and effective company," said recently appointed Pfizer chief executive Jeffrey Kindler, in a press release. Kindler promised to reveal more details in January, though the cuts are expected by the end of 2006.

The company announced the impending cuts after the close of Tuesday trading. In morning trading Wednesday, the price bumped up about 1 percent before leveling off.

Analysts praised Pfizer for getting serious about slashing costs.

Chris Schott, analyst for Banc of America Securities, said in a recorded phone message that Pfizer's job cutting "while not completely unexpected, is a step in the right direction" and "a positive for the industry."

Schott said the action could save up to $500 million in costs, and add up to 5 cents in annual earnings per share.

"We see this move as a positive for the industry given the excess capacity that exists within pharma sales organizations," said Schott, in a published note.

Barbara Ryan, analyst for Deutsche Bank North America, said in a published note that the cuts are "absolutely necessary" and they demonstrate "that Pfizer plans to take a leadership role in fundamentally reshaping its cost restructure."

Ryan said the job cuts will have only an "incrementally positive" impact on annual earnings per share by adding 3 cents, but it will be a "major catalyst" for other companies to slash staff, "which has only been applied with trepidation until now."

John Boris, analyst for Bear Stearns, said in a published note that Pfizer will save up to $450 million with the job cuts. Boris said the stock price should increase in 2007 as investors gain confidence in EPS growth after at least $4 billion in cost cuts.

Les Funtleyder, analyst for Miller Tabak, said in a published note that the sales staff cuts will have a limited impact on the company's balance sheet, "but it shows Pfizer is starting to 'get it' about what is expected from them from a financial perspective."

Pfizer announced the impending cuts just two days before its scheduled conference with analysts at its research & development facilities in Groton, Conn., on Thursday. That meeting will focus on the company pipeline and up-and-coming products, according to Pfizer.

Pfizer, and the No. 4 U.S. drugmaker Merck (up $0.84 to $44.51, Charts), are both conducting multi-billion dollar cost-cutting efforts to restructure their companies. Much of this is driven by recent patent expirations on blockbuster drugs, such as Pfizer's antidepressant Zoloft, which had $3.3 billion in annual sales, and Merck's cholesterol-cutting statin Zocor, with annual sales of $4.4 billion. The patents ran out on these products in June.

In other Pfizer-related news, an advisory committee for the Food and Drug Administration will vote Wednesday on whether the company's painkiller Celebrex should be used to treat rheumatoid arthritis in children. The advisers' vote is non-binding and the review won't be completed until later, but the FDA follows the advice of its committees most of the time.

The analysts quoted in this story do not own shares of Pfizer stock, but Deutsche Bank North America, Bear Stearns and Bank of America may make a market in the company.