Pfizer and its peers
Pfizer (PFE) is one of the oldest and largest pharmaceutical companies. It focuses on biopharmaceutical and consumer healthcare products. Other companies in Biopharmaceuticals include Teva Pharmaceuticals (TEVA), Merck & Co. (MRK), and Novartis AG (NVS).
Large pharmaceutical and healthcare companies generally carry high debt on their accounting balance sheets. Therefore, EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) is often used to value capital-intensive companies. The above chart shows the forward enterprise multiple, or forward EV/EBIDTA multiple, trend over five years for Pfizer compared to industry trend.
The PE (price-to-earnings) ratio is one of the simplest multiples used for valuations. A forward PE ratio represents the estimates of the PE ratio for the next 12 months. Analysts’ estimates suggest that Pfizer’s forward PE ratio increased from 8.4x in 2014 to 10.5x in 2015. The ratio is hovering around 19x for the industry.
Also, the estimate for the PEG, or PE-to-growth, ratio is 4.35. The company is trading at a lower PE ratio due to declining sales and the expiry of patents in previous years. Drugs like Celebrax, Viagra, and Lyrica expired in recent years. The patents for Enbrel and Zyvox are set to expire in the near future.
Pfizer’s PE ratio is expected to grow due to increased sales and new product launches. Also, the acquisition of Hospira will have a positive effect on the company’s revenue and valuation. Since the announcement of the Hospira acquisition, Pfizer’s stock is making new 52-week highs.