Pfizer Inc (PFE, Financial) has experienced a daily gain of 3.37% and a 3-month loss of -7.09%. Despite these fluctuations, its Earnings Per Share (EPS) (EPS) remains at a solid 3.76. Yet, the question remains: is Pfizer (PFE) significantly undervalued? This article seeks to answer this question through a comprehensive valuation analysis. We invite you to delve into the following analysis to gain a deeper understanding of Pfizer's intrinsic value.
Company Introduction
Pfizer is one of the world's largest pharmaceutical firms, with annual sales close to $50 billion (excluding COVID-19 product sales). Pfizer's top sellers include pneumococcal vaccine Prevnar 13, cancer drug Ibrance, and cardiovascular treatment Eliquis. With international sales representing close to 50% of its total sales, Pfizer has a strong global presence. Let's compare the stock price of $33.17 with the GF Value of $50.97 to determine if the stock is undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair trading value of the stock.
According to our valuation method, Pfizer (PFE, Financial) appears to be significantly undervalued. This assessment is based on historical multiples, an internal adjustment factor based on Pfizer's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns.
Because Pfizer is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Investing in companies with poor financial strength can result in a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great ways to understand the financial strength of a company. Pfizer's cash-to-debt ratio is 0.69, which is lower than 54.59% of 1057 companies in the Drug Manufacturers industry. The overall financial strength of Pfizer is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Pfizer has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $77.90 billion and an EPS of $3.76. Its operating margin is 30.09%, which ranks better than 95.05% of 1051 companies in the Drug Manufacturers industry. Overall, GuruFocus ranks Pfizer's profitability at 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation 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 90.37% of 924 companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is 29.6%, which ranks better than 76.21% of 887 companies in the Drug Manufacturers industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to determine its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Pfizer's ROIC is 13.17, and its WACC is 7.2.
Conclusion
In conclusion, the stock of Pfizer (PFE, Financial) shows every sign of being significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 76.21% of 887 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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