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Pfizer Valuation

PFE
4/13/2016
Current share price: $32.53

Company Background
Pfizer is a biopharmaceutical company. Pfizer develops and manufactures products related to healthcare.  Its drug brands include: Lyrica, Enbrel, Lipitor, Viagra, Celebrex, and many more.  Pfizer is one of the largest pharmaceutical companies in the world.  It has recently been in the headlines for the called off Pfizer – Allergan merger.  

Valuation 
Analyst Value
The simplest Valuation is to compare an average Analyst target to the current price. The mean analyst target is 17% above the current price. This suggests that there may be significant upside potential.  This needs to be verified by the Valuations that follow to ensure that it is not skewed by an overly optimistic analyst riding the bull market or a stock pump.


Graham Value 
Continuing to advance in valuation complexity, next comes Graham Valuations.   The 4 variants used are based upon different time tables for calculating EPS and EPS growth. All four variations show Pfizer to be Overvalued. Debt to equity ratio has increased by ~4x over this time period, which should be corrected for to form a more precise valuation.


Relative Value 
The relative valuations techniques used value the security by comparing common multiples to Historic Multiples that the company has traded at. Buying at less than the historic values represent a good value. Based on historic multiples PFE is trading at a value well above what it has normally traded at. All four multiple based valuations show Pfizer to be at least 25% overvalued.  

Intrinsic Value 
Intrinsic valuations include discounted cash flow (DCF), dividend discount model (DDM), and Earnings Power Value  (EPV). The DCF model values the PFE at $19.19, suggesting almost 50% downside potential. EPV values Pfizer at $23.68 confirming that PFE is trading at a significant premium. The dividend growth model, DDM, values the PFE at $25.46. All intrinsic valuation techniques show Pfizer to be overvalued by greater than 20%.


Technical Indicators 
Simple Moving Average 
PFE's 13 day simple Moving Average is rising and it is currently trading above it.  These are both signs of a bullish trend.
MACD 
The MACD also displays two bullish signal indicators.  The first is that it is above its moving average and the second is that it is positive in value.
On Balance Volume 
The slope of the On Balance Volume indicator is positive, 
confirming the bullish trend shown in the other technical indicators.  

Conclusion
Pfizer is overvalued by ~20-40%.  At the current share price Pfizer does not present an attractive value opportunity.  Those looking to enter long positions would benefit from waiting for a better entry price.  This conclusion is unanimous with all valuation methods.

PFE represents an adequate stock to trade as a value investor.  Technical indicators are unanimous and strongly bullish.  The large amount that PFE is overvalued skews the risk/reward back toward unjustifiable risk.  The positive technical indicators are largely mirrored by the entire stock market.  Bets placed on the market surge continuing may be better placed on a stock with a valuation closer to the current share price, limiting the potential fall if the trade does not go as expected.





Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

This website expresses my own opinion.   I am not a financial advisor.  All opinions, research, analyses, and other information provided on this website are provided as general market commentary and do not constitute investment advice.





This post first appeared on Simple Stock Valuation, please read the originial post: here

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Pfizer Valuation

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