Pfizer’s Valuation after Its 4Q16 Earnings Release

Headquartered in New York City, Pfizer (PFE) is one of the largest pharmaceutical companies by revenue. It reported an 8.0% rise in revenues to $52.8 billion for 2016, compared to $48.9 billion for 2015.

From an investor’s point of view, the two best valuation multiples for valuing companies such as Pfizer are forward PE (price-to-earnings) and EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples, considering relatively stable earnings.

PE multiples represent what one share can buy for an equity investor. Pfizer was trading at a forward PE multiple of ~13.0x on February 23, 2017, compared to the industry average of ~16.1x. Other competitors such as Johnson & Johnson (JNJ), Eli Lilly (LLY), and Merck & Co. (MRK) have forward PE multiples of 16.9x, 19.5x, and 16.8x, respectively.

Based on the last five years, Pfizer’s current valuation is neither high nor low. It has ranged from ~7.0x to ~16.0x.

On a capital-structure-neutral basis, Pfizer currently trades at ~10.2x, which is much lower than the industry average of ~11.5x. Competitors such as Johnson & Johnson (JNJ), Eli Lilly (LLY), and Merck & Co. (MRK) have forward EV-to-EBITDA multiples of 11.5x, 14.1x, and 10.2x, respectively.

Pfizer stock has risen ~12.6% in the last 12 months. Analysts estimate that the stock has a potential to return ~11.4%. Their recommendations show a 12-month target price of $37.95 per share compared to $34.06 per share on February 24, 2017.

About 52.0% of analysts are recommending a “buy” for the stock, and ~48.0% are recommending a “hold.” Changes in analysts’ estimates and recommendations are based on changing trends in the price of the stock.

To divest company-specific risks, you can consider ETFs such as the iShares S&P Global Healthcare (IXJ), which holds 4.9% of its total assets in Pfizer.