We've been asking ourselves recently if the market has placed a fair valuation on Pfizer. Let's dive into some of the fundamental values of this large-cap Health Care company to determine if there might be an opportunity here for value-minded investors.
Pfizer Is Potentially Undervalued and Trades Below Its Graham Number:
Pfizer Inc. discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 24.45 and an average price to book (P/B) ratio of 4.16. In contrast, Pfizer has a trailing 12 month P/E ratio of 8.8 and a P/B ratio of 1.89.
When we divide Pfizer's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.69. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Wider Gross Margins Than the Industry Average of 60.94%:
| 2018-02-22 | 2019-02-28 | 2020-02-27 | 2021-02-25 | 2022-02-24 | 2023-02-23 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $52,546 | $40,825 | $40,905 | $41,651 | $81,288 | $100,330 |
| Gross Margins | 79.0% | 78.0% | 80.0% | 80.0% | 62.0% | 66.0% |
| Operating Margins | 27% | 16% | 18% | 20% | 35% | 37% |
| Net Margins | 41.0% | 27.0% | 39.0% | 22.0% | 27.0% | 31.0% |
| Net Income (MM) | $21,309 | $11,153 | $16,026 | $9,160 | $21,980 | $31,370 |
| Earnings Per Share | $3.34 | $1.77 | $2.68 | $1.63 | $3.81 | $5.47 |
| EPS Growth | n/a | -47.01% | 51.41% | -39.18% | 133.74% | 43.57% |
| Diluted Shares (MM) | 6,385 | 6,300 | 5,981 | 5,632 | 5,768 | 5,733 |
| Free Cash Flow (MM) | $18,685 | $17,962 | $14,634 | $16,631 | $35,291 | $32,503 |
| Capital Expenditures (MM) | -$2,217 | -$2,136 | -$2,046 | -$2,226 | -$2,711 | -$3,236 |
| Net Current Assets (MM) | -$58,998 | -$45,737 | -$71,344 | -$55,690 | -$44,321 | -$50,029 |
| Long Term Debt (MM) | $33,538 | $32,909 | $35,955 | $37,133 | $36,195 | $32,884 |
| Net Debt / EBITDA | 1.15 | 1.78 | 3.25 | 2.13 | 0.22 | 0.31 |
Pfizer has low leverage and wider gross margins than its peer group. Additionally, the company's financial statements display decent operating margins with a positive growth rate and positive EPS growth. Furthermore, Pfizer has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and just enough current assets to cover current liabilities.
