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Pfizer Inc. Message Board

  • drstone3 Mar 4, 2011 6:56 AM Flag

    Is PFE worth $39 per share? or $14 you decide.


    The long-term growth in the pharmaceutical industry is projected to be around 4% so, in the long term, Pfizer maintains its market share. At a discount rate of 10%, that gives a fair value of just under $39 a share. Some will consider this projection too optimistic for a yummy bowl of sustaining porridge; it is toooo hot.

    The most reasonable projection takes the midpoint of Pfizer’s earnings guidance for 2011 and 2012. After that, earnings per share increase 4% from 2011 to 2012 and continue that 4% growth in perpetuity. If Pfizer can increase earnings 4% the year after losing patent protection on the world’s best selling drug, Pfizer can continue this growth and track the industry growth rate. Then, with the more conservative 11% discount rate, Pfizer’s fair value would be $33 per share. Not too optimistic, not too pessimistic. But in fact, just right.

    At the current price of under $19 per share, then, Pfizer is the undervalued ugly duckling of the market. A conservative approach using a discounted cash flow model shows the fair value of Pfizer at $33 per share, more than 70% higher than its current value. If the next few years go well, an upside of the aggressive projection gives us $39 a share. Our worst case, cold porridge scenario shows the downside, but even the most pessimistic analysts out there don’t expect Pfizer’s earnings to decrease nearly 40%, never again to increase. So is PFE a buy? Sell? or Hold for the ride back up into the $30's?

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    • I know you are prone to exaggerate a smidge, but heavy? Saying you are heavy is like saying you sort of like yourself, or saying you have made a few posts on this board.

    • I've never liked consuming beans of any kind. I may be overweight but I've always been a fussy eater and there are plenty of foods I won't touch.

      I'm heavy because I'm a chocoholic and also have a big taste for cheddar cheese.

    • > I only count beans - I don't eat them.

      So your excessive flatulence is not diet related?

    • Even at 4% growth rate this stock's valuation is very attractive.

      My thesis is, over the medium term, the industry growth rate will be higher than 4%.

      * We are becoming a drug culture. The Baby Boomers broke ground by taking a pill for everything - cholesterol, depression, etc. Now, there's not such a stigma attached to pill popping in the eyes of Gen X and Gen Y. Utilization will increase faster than projected by these newer generations.

      * Sooner or later the big one is going to hit. A safe and effective pill for weight loss.. and the revenue projections are going to make lipitor look like chump change. You want to be in pharma when it reaches fever pitch - and sell on the news because it'll probably fail in late stage testing. This event may take several years still.

      * The U.S. is still in for either a deleveraging driven depression or a prolonged period of high inflation. In either scenario you'd want to be in solid companies that don't rely on discretionary, have low P/E's, and have the ability to pass through price increases. Pharma fits the bill.

      This is my justification for holding this stock (and all big pharma) over a long time period. The danger to this thesis is that drugs will become commoditized. It's going to happen sooner or later.. just look at what antibiotics sell for now. It's hard to find an industry where discovering a formula can get you a long term sustainable profit. When it becomes clear that it doesn't pay anymore to be a drug developer - it's time to switch out to a generic drug maker, or to another sector. We may be seeing signs that time is coming close.

    • It is impossible to compute FMV for PFE since its future FCF is unknowable, unlike stable companies, among other problems.

      It is however already over-valued for a secular bear market. When the current bull cycle ends, its valuation will fall as more money leaves the stock market in general & pharma in particular, due to end of Obamacare.

    • neither $39 nor $14. It is worth around $25 because of all the debts it still has in acquiring WYE and King Pharma.

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