Pfizer Inc. (NYSE:PFE) shares are up more than 0.94% this year and recently increased 0.25% or $0.09 to settle at $36.56. Zogenix, Inc. (NASDAQ:ZGNX), on the other hand, is down -10.86% year to date as of 01/10/2018. It currently trades at $35.70 and has returned 1.71% during the past week.
Pfizer Inc. (NYSE:PFE) and Zogenix, Inc. (NASDAQ:ZGNX) are the two most active stocks in the Drug Manufacturers – Major industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect PFE to grow earnings at a 5.90% annual rate over the next 5 years. Comparatively, ZGNX is expected to grow at a 25.00% annual rate. All else equal, ZGNX’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Pfizer Inc. (PFE) has an EBITDA margin of 26.71%. This suggests that PFE underlying business is more profitable PFE’s ROI is 7.80% while ZGNX has a ROI of -50.20%. The interpretation is that PFE’s business generates a higher return on investment than ZGNX’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. PFE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.42. Comparatively, ZGNX’s free cash flow per share was -0.80. On a percent-of-sales basis, PFE’s free cash flow was 4.74% while ZGNX converted -0.09% of its revenues into cash flow. This means that, for a given level of sales, PFE is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. PFE has a current ratio of 1.40 compared to 2.70 for ZGNX. This means that ZGNX can more easily cover its most immediate liabilities over the next twelve months. PFE’s debt-to-equity ratio is 0.72 versus a D/E of 0.32 for ZGNX. PFE is therefore the more solvent of the two companies, and has lower financial risk.
PFE trades at a forward P/E of 13.28, a P/B of 3.58, and a P/S of 4.15, compared to a P/B of 15.26, and a P/S of 54.91 for ZGNX. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. PFE is currently priced at a -4.52% to its one-year price target of 38.29. Comparatively, ZGNX is -29.17% relative to its price target of 50.40. This suggests that ZGNX is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.50 for PFE and 1.50 for ZGNX, which implies that analysts are more bullish on the outlook for PFE.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. PFE has a beta of 0.95 and ZGNX’s beta is 1.98. PFE’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. PFE has a short ratio of 3.92 compared to a short interest of 4.79 for ZGNX. This implies that the market is currently less bearish on the outlook for PFE.
Pfizer Inc. (NYSE:PFE) beats Zogenix, Inc. (NASDAQ:ZGNX) on a total of 8 of the 14 factors compared between the two stocks. PFE is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, PFE is the cheaper of the two stocks on book value and sales basis, Finally, PFE has better sentiment signals based on short interest.