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Pfizer’s Valuation after 2Q17 Earnings

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A look at Pfizer’s valuation

Pfizer (PFE) is one of the largest pharmaceutical companies by revenue. It reported a 2% decline in revenues, to $12.89 billion in 2Q17 from $13.15 billion in 2Q16.

The company missed analysts’ estimates for revenues in 2Q17 and reported revenues of $12.89 billion, compared to estimates of $13.08 billion for 2Q17. Also, the company reported earnings per share of $0.67 for 2Q17, beating analysts’ estimates for EPS of $0.66 in 2Q17.

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Forward PE

Pfizer was trading at a forward PE multiple of ~12.5x on August 10, as compared to the industry average of ~16.5x. Johnson & Johnson (JNJ), Eli Lilly and Co. (LLY), and Bristol-Myers Squibb (BMY) have forward PE multiples of 17.6x, 18.8x, and 18.4x, respectively.

Forward EV/EBITDA

On a capital structure–neutral basis, Pfizer currently trades at ~10.3x, which is much lower than the industry’s average of ~13.4x as of August 10. Johnson & Johnson (JNJ), Eli Lilly and Co. (LLY), and Bristol-Myers Squibb (BMY), have forward EV/EBITDA multiples of 13.3x, 13.9x, and 15.3x, respectively.

Analysts’ recommendations

Pfizer’s stock has fallen nearly 4.6% in the last 12 months while the stock price has risen ~3.0% in 2017 year-to-date. Analysts estimate the stock has a potential to return ~12.4%. Analysts’ recommendations show a 12-month targeted price of $37.60 per share, compared to the last price of $33.45 per share on August 9. Also, there are 21 analysts tracking Pfizer. Eleven recommend a “buy” while ten recommend a “hold.”

The consensus rating on Pfizer’s stock is 2.55, representing a “hold” for long-term investors and a moderate “buyæ for value investors. Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.

The First Trust Nasdaq Pharmaceuticals ETF (FTXH) invests 8.6% of its total assets in Pfizer (PFE). FTXH also invests 8.5% in Johnson & Johnson (JNJ), 4.3% in Bristol-Myers Squibb (BMY), and 4.2% in Eli Lilly and Co. (LLY).

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