Pfizer (PFE - Free Pfizer Stock Report), the New York-based drugmaker and a Dow-30 component, has reported third-quarter earnings of $0.42 a share, versus $0.39 in the comparable period of 2013. Year-over-year improvement was driven primarily by sharp cost cutting, offset by lower revenues. Adjusted earnings, which exclude one-time gains, charges, and other nonrecurring items, came in at $0.57 a share, versus $0.58 in 2013. The adjusted figure squeaked by consensus expectations of $0.56, thanks largely to stronger revenue growth in emerging markets and better vaccine tallies. Following the release, management narrowed its 2014 reported earnings guidance from $1.47-$1.62 a share, to $1.50-$1.59, and its adjusted guidance from $2.20-$2.30 a share, to $2.23-$2.27. Pfizer's stock price edged slightly lower following the release.

In the third quarter, total revenues dipped 2% year over year, to $12.4 billion, continuing a downward trend that dates back to the fourth quarter of 2011. On a positive note, Pfizer has seen the pace of top-line erosion slow significantly in recent quarters, as improved contributions in its core franchises and other areas have helped to better offset intense generic competition. Like several of its big-name rivals, the company has had to deal with the loss of a few major patents in recent years, none bigger than LIPITOR, which expired in November 2011. After nearly a decade as the world's top-selling drug, LIPITOR's fallout continued in the third quarter, with sales declining 8%, to $490 million. The once-prominent blockbuster medication now represents less than 4% of Pfizer's total revenues.

Encouragingly, Pfizer's current lineup has really started to gain traction in 2014. In the September period, its two top-grossing franchises, LYRICA and PREVNAR, posted vigorous sales growth of 16% and 18%, respectively. Combined, these drugs now account for nearly 20% of the total revenue base and are the clear cut cornerstones of Pfizer's biopharmaceuticals portfolio. Meanwhile, the company's #3 and #4 selling franchises, ENBREL and CELEBREX, each posted sales gains of 2% last quarter. This momentum helped to partially mitigate continued generic erosion on VIAGRA (sales -7%) and LIPITOR (detailed above). Strong growth in emerging markets (+9%) was also a key highlight in the September period.

While top-line comparisons are likely to remain somewhat difficult in the coming quarters, it appears that Pfizer is well positioned to turn the corner sometime in the next couple of years. Key drivers include strong sales momentum in its core lineup, easing generic pressures on VIAGRA and LIPITOR, and an attractive stable of new comers with high-growth potential. Pfizer's oncology assets, most notably XALKORI and INLYTA, have performed particularly well of late and appear poised to become more meaningful contributors down the road.

Business development deals and M&A activity could also help to spur optimism, although a potential takeover of AstraZeneca seems a lot less likely now than it did a few weeks ago. Pfizer's $120 billion bid to buy its British rival was rejected earlier this year, but many speculated that the deal, which was geared toward tax inversion, still had a chance. While Pfizer has indicated that it will continue to seek tax inversion, the prospects have faded considerably due to recent changes in U.S. tax regulations. On September 24th, the U.S. Treasury announced a series of new rules designed to crack down on such transactions.

All told, we continue to view Pfizer as a relatively safe play within the pharmaceutical space. The company maintains strong financials, high-grade fundamentals, and a hefty share in most major markets, to go along with an impressive track record. Its ongoing commitment to returning value to shareholders is also a key positive. Besides paying a healthy dividend (it now yields 3.6%), management recently announced a mammoth $11 billion share repurchase program. We continue to view Pfizer stock as an attractive and well-defined total return play with high relative stability. The equity holds our top rank for Safety (1), and the company's Financial Strength (A++) is also top of the line.

About the Company: Pfizer is a major producer of pharmaceuticals, hospital products, consumer products, and animal health lines. Important product names include NORVASC (cardiovascular); ZOLOFT (antidepressant); ZITHROMAX (antibiotic); LIPITOR (cholesterol); ARICEPT (Alzheimer’s); CARDURA (cardiovascular); DIFLUCAN (antifungal); ZYRTEC (antihistamine); VIAGRA (impotence); and CELEBREX (rheumatoid arthritis and osteoarthritis).

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.