Pfizer Inc ($PFE) – Valuation May 2023

Company Profile (excerpt from Wikipedia):

Pfizer Inc. is an American multinational pharmaceutical and biotechnology corporation headquartered at The Spiral in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfizer (1824–1906) and his cousin Charles F. Erhart (1821–1891).

Pfizer develops and produces medicines and vaccines for immunology, oncology, cardiology, endocrinology, and neurology. The company’s largest products by sales are the Pfizer–BioNTech COVID-19 vaccine ($37 billion in 2022 revenues), Nirmatrelvir/ritonavir ($18 billion in 2022 revenues), Apixaban ($6 billion in 2022 revenues), a pneumococcal conjugate vaccine ($6 billion in 2022 revenues), and Palbociclib ($5 billion in 2022 revenues). In 2022, 42% of the company’s revenues came from the United States, 8% came from Japan, and 50% came from other countries.

Pfizer was a component of the Dow Jones Industrial Average stock market index from 2004 to August 2020. The company ranks 43rd on the Fortune 500 and 43rd on the Forbes Global 2000.

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor
Must pass 6 out of the following 7 tests.
1. Adequate Size of the EnterpriseMarket Cap > $2BilCurrent Market Cap$209,745,990,000.00PASS
2. Sufficiently Strong Financial ConditionCurrent Ratio > 2Current Assets$50,078,000,000.00
Current Liabilities$36,562,000,000.00
Current Ratio1.37FAIL
3. Earnings StabilityPositive EPS for 10 years priorYearEPS
2022-12$5.47
2021-12$3.85
2020-12$1.63
2019-12$2.82
2018-12$1.87
2017-12$3.52
2016-12$1.17
2015-12$1.11
2014-12$1.42
2013-12$3.19
Years Positive10PASS
4. Dividend RecordDividend Payments for 10 years priorYearDividend
2022-12$1.60
2021-12$1.56
2020-12$1.52
2019-12$1.44
2018-12$1.36
2017-12$1.28
2016-12$1.20
2015-12$1.12
2014-12$1.04
2013-12$0.96
Years With Payments10PASS
5. Earnings GrowthIncrease of 33% in EPS in past 10 years using 3 year averages at beginning and end
Beginning Average$1.91
End Average$3.65
Growth91.43%PASS
6. Moderate PEmg RatioPEmg < 20Price$37.16
EPSmg$3.61
PEmg10.28PASS
7. Moderate Price to AssetsPB Ratio < 2.5 OR PB*PEmg < 50Price$37.16
Book Value$17.89
PB Ratio2.08
PB*PEmg21.36PASS
Total Score6
Suitable for Defensive Investors?YES
Enterprising Investor
Must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial ConditionCurrent Ratio > 1.5Current Assets$50,078,000,000.00
Current Liabilities$36,562,000,000.00
Current Ratio1.37FAIL
2. Sufficiently Strong Financial ConditionDebt to NCA < 1.1Total Debt$30,738,000,000.00
Current Assets$50,078,000,000.00
Current Liabilities$36,562,000,000.00
Net Current Assets$13,516,000,000.00
Debt to NCA2.27FAIL
3. Earnings StabilityPositive EPS for 5 years priorYearEPS
2022-12$5.47
2021-12$3.85
2020-12$1.63
2019-12$2.82
2018-12$1.87
Years Positive5PASS
4. Dividend RecordCurrently Pays DividendDividend$1.60PASS
5. Earnings GrowthEPSmg greater than 5 years agoEPSmg – Current$3.68
EPSmg – Prior$2.04
Growth80.35%PASS
Total Score3
Suitable?YES

Stage 2: Determination of Intrinsic Value

MG Value Formula
Value = EPSmg * (8.5+2g)
Calculating MG Value
EPSmg$3.61
MG Growth Estimate7.85%
MG Value$87.44
Net Current Asset Value-$7.74
MG Value based on 3% Growth$52.40
MG Value based on 0% Growth$30.72
Market Implied Growth Rate0.89%
MG Opinion
Current Price$37.16
% of Intrinsic Value42.50%
OpinionUndervalued
MG Grade
FactorScore
Investor Suitability2.0
Good Price to Value?1.0
Trading Below Graham Number?0.0
Long-term Dividend Growth?0.0
Dividend Yield Above 2%?0.5
PEmg Below Industry Average?0.5
Trading Below NCAV?0.0
Total Score4.0
MG GradeB+

Pfizer Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the current ratio is below the Defensive Investor’s requirement of 2.0, but that is not enough to disqualify the company from the Defensive Investor’s requirements. The Enterprising Investor is concerned with the low current ratio and the high debt to net current assets; however, because the company is suitable for the Defensive Investor it is by default also suitable for the Enterprising Investor. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.37 in 2019 to an estimated $3.61 for 2023. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.89% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into the company revealed the company was trading just above its Graham Number of $34.40. The company pays a dividend yield of 4.37%, which is among the highest dividend yields in the MG Universe. Its PEmg (price over earnings per share – ModernGraham) was 10.28, which was below the industry average of 44.82, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Pfizer Inc fares extremely well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Other Useful Information
Current Ratio1.37
PB Ratio2.08
Dividend Yield4.37%
Number of Consecutive Years of Dividend Growth13
10-Year Share Buy-back Ratio2.2
5-Year Share Buy-back Ratio1.0
1-Year Share Buy-back Ratio0.1
Insider buys – past 3 months1

Most Recent Balance Sheet Figures

Balance SheetDate
Total Current Assets$50,078,000,000.00
Total Current Liabilities$36,562,000,000.00
Long Term Debt$30,738,000,000.00
Total Assets$195,617,000,000.00
Intangible Assets$93,477,000,000.00
Total Liabilities$94,381,000,000.00
Shares Outstanding (diluted)5,727,000,000.00

Earnings Per Share History

Earnings
YearEPS (diluted)EPSmg
Estimated-Next FY$2.94$3.61
2022-12$5.47$3.68
2021-12$3.85$2.77
2020-12$1.63$2.22
2019-12$2.82$2.37
2018-12$1.87$2.04
2017-12$3.52$2.11
2016-12$1.17$1.52
2015-12$1.11$1.73
2014-12$1.42$1.95
2013-12$3.19$2.05
2012-12$1.94$1.43
2011-12$1.27$1.18
2010-12$1.02$1.24
2009-12$1.23$1.39
2008-12$1.20$1.49
2007-12$1.17$1.55
2006-12$2.66$1.64
2005-12$1.09$1.14
2004-12$1.49$1.13
2003-12$0.54$0.94
2002-12$1.46$1.08
2001-12$1.22$0.85
2000-12$0.59$0.66
1999-12$0.78$0.66
1998-12$0.73$0.57
1997-12$0.56$0.46
1996-12$0.50N/A
1995-12$0.42N/A
1994-12$0.35N/A
1993-12$0.17N/A

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.

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