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Market Update

Earnings on Tap: Pfizer

A strong product pipeline along with aggressive cost-cutting measures should buoy earnings growth and offset massive patent losses.

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Drugmaker  Pfizer (PFE) is set to report fourth-quarter numbers Tuesday ahead of the bell. The consensus estimate calls for earnings of $0.44 per share compared with $0.19 per share in the year-ago quarter.

For the third quarter, the largest U.S. drug manufacturer reported a year-over-year decline of 16% in revenues at $14 billion amid disappointing sales of its Prevnar vaccine, loss of exclusivity rights for Lipitor, and slumping emerging-markets revenues. Earnings came in at $0.43 per share.

The company also adjusted its earnings outlook for the full year. Pfizer now expects 2012 earnings per share of $2.14 to $2.17, narrowed from $2.12 to $2.22 estimated earlier.

Meanwhile, Pfizer recently won approval for wider usage of its blockbuster Prevnar vaccine. The product, which was already approved in the United States for children ages 6 weeks to 5 years, can now be used for kids in the 6-17 age group. The vaccine has also been approved for adults ages 50 and above.

Morningstar analyst Damien Conover has faith in Pfizer's financial foundation, which is based on strong cash flows generated from a basket of diverse drugs.

Despite near-term threats to Pfizer from loss of exclusivity on key products, Conover believes the firm's operations can withstand the blitz of new generic competition. Besides, billions of dollars garnered through aggressive cost cuts should buoy earnings growth in the face of major patent losses.

The stock held relatively steady during the last quarter but is off to a good start this year, up nearly 8% since Jan. 1, and is presently trading around Conover's fair value estimate.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.