Pfizer Inc. - Valuation Report

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Contents

1. Executive Summary        

2. Introduction        

2.1 Investment Thesis        

2.11 Merger with Allergan is a Game Changer        

2.12 PFE is a Long-Term Buy        

3. The Company        

3.1 An overview of the business Model        

3.3 Core Product Lines        

3.31 Global Innovative Pharmaceutical (GIP) Segment        

3.32 Global Vaccines, Oncology and Consumer Healthcare (GVOC) business        

3.33 Global Established Pharmaceutical (GEP) business        

3.4 Top Products        

3.5 Competitors        

3.54 Bristol-Myers Squibb        

4. The Industry and Company Analysis        

4.1 GEP Segment        

4.2 GVOC Segment        

4.3 Industry        

4.4 Product Mix and Development        

4.5 Decline Sales and New Pipelines        

5. Performance Analysis        

6. Valuation        

4.1 Calculation of WACC        

4.11 Equity Component        

4.11 Debt Component        

4.2 Growth        

4.3 FCFF Forecast        

4.3 Multiple of EV/FCFF        

4.5 Weighted Average of the Multiple of EV/FCFF and Discounted Cash Flow (DCF)        

7. Conclusion        

Appendix 1: Sources        

1. Executive Summary

Pfizer Inc. is an American global pharmaceutical corporation. Pfizer develops and produces medicines and vaccines for a wide range of medical disciplines, including immunology, oncology, cardiology, diabetology/endocrinology, and neurology. I am initiating coverage on PHE with a BUY at a target price of $33.91 in the short term and highly recommend buying the stock for the long-term to the income investor. This is around a 13 percent premium from the market price of a $30.01.

In order to calculate the intrinsic value of the company two methods were used. These 2 methods were a Discounted Cash Flow and a Multiple of EV/FCFF. After that a weighted average was used between the 2 methods, giving more weight to the DCF, in order to reach our conclusion of the target price.  

Although last year, a lot of Pfizer’s Ratios are trending downwards due to expiring patents and the being threatened by the generic brands in the market. Going forward, Pfizer is expected to combine its innovative products business with Allergan's branded pharma business to form a new unit dubbed "Global Specialty and Consumer Brands" that should be the main growth driver for the merged entity in the years to come.

Pfizer is a good choice for income investors who want a steady, reliable dividend. Pfizer has paid a dividend to shareholders for the last 77 years and has increased its dividend every year for the last six years. In the last five years, PFE stock has increased its dividend about 9.2% annually, on average.

2. Introduction

2.1 Investment Thesis        

2.11 Merger with Allergan is a Game Changer

One of the biggest factors set to affect Pfizer stock is the company’s proposed merger with Irish pharma company Allergan Plc. There is a risk that deal won’t go through due to regulatory reasons, but the upside is great for PFE shareholders if it does. The company’s together are valued at over $300 billion, which will make Pfizer the largest pharmaceutical firm in the world. In addition Pfizer, will have an extensive product line with a lot of promising pipeline drugs. Merrill Lynch has estimated that the merger will add roughly $4 to PFE’s share price.

2.12 PFE is a Long-Term Buy

The company is a good choice in the long term, for investors who want a reliable dividend. The stock pays a generous amount of 4% dividend yield and the company launched a $5 billion repurchase plan to its shareholders. The company’s dividend payment makes it a good choice for income investors, and the fact that it is a healthcare stock means that any economic fluctuation will have much smaller impact on the company’s value, as that industry tends to be relatively insulated during times of recession.

All signs therefore point to Pfizer either spinning off its legacy products business in a manner similar to its creation of Zoetis, or attempt to sell this product portfolio to a generic drugmaker for perhaps around $20 billion to $25 billion (based on its current revenue projections for 2016 and beyond), in order to unlock the value of its innovative products segment.

Our Recommendation is to BUY for the Long-term, even though recent performances are a little down due to the expiration of patents but with a lot of Capital in R&D and a close to final acquisition, the company is looking at a strong and healthy position in the future.