On August 17, 2023, Pfizer (PFE, Financial), a leading pharmaceutical company, recorded a daily gain of 2.99%, despite a 3-month loss of -0.01%. The company's Earnings Per Share (EPS) stands at 3.76. This article seeks to determine if Pfizer's stock is significantly undervalued and provides a detailed valuation analysis for a comprehensive understanding.
Company Overview
Pfizer Inc (PFE, Financial) is one of the world's largest pharmaceutical firms with annual sales close to $50 billion, excluding COVID-19 product sales. The company primarily sells prescription drugs and vaccines, including top sellers like Prevnar 13, Ibrance, Eliquis, and Xeljanz. Pfizer's market extends globally, with international sales accounting for nearly 50% of total sales, and emerging markets contributing significantly to international sales.
At a current share price of $36.54 and a market cap of $206.30 billion, Pfizer's stock appears significantly undervalued compared to its GF Value of $52.84. The subsequent sections provide a detailed analysis of Pfizer's value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated using historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock.
According to the GuruFocus Value calculation, Pfizer (PFE, Financial) appears significantly undervalued. This assessment is based on historical trading multiples, past business growth, and analyst estimates of future business performance. If a stock's price is significantly above the GF Value Line, it's considered overvalued, and its future returns are likely to be poor. Conversely, if it's significantly below the GF Value Line, its future returns will likely be higher. Given Pfizer's significant undervaluation, the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating Pfizer's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to thoroughly review a company's financial strength before buying its shares. Pfizer's cash-to-debt ratio of 0.69 ranks worse than 54.85% of companies in the Drug Manufacturers industry. Based on this, GuruFocus ranks Pfizer's financial strength as 6 out of 10, indicating a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially those with consistent profitability over the long term. Pfizer has been profitable for 10 years over the past 10 years. In the past 12 months, the company had revenues of $77.90 billion and Earnings Per Share (EPS) of $3.76. Its operating margin of 30.09% is better than 95.09% of companies in the Drug Manufacturers industry. GuruFocus ranks Pfizer's profitability as strong.
Growth is a crucial factor in a company's valuation. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Pfizer is 34.4%, which ranks better than 90.7% of companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is 29.6%, which ranks better than 76.52% of companies in the Drug Manufacturers industry.
ROIC vs WACC
Another way to evaluate a company's profitability is by comparing its return on invested capital (ROIC) and the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Pfizer's ROIC is 13.17, and its cost of capital is 6.82.
Conclusion
Overall, Pfizer (PFE, Financial) stock appears significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 76.52% of companies in the Drug Manufacturers industry. To learn more about Pfizer stock, you can check out its 30-Year Financials here.
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