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What’s Pfizer’s Valuation after 4Q17 Earnings?

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A look at Pfizer’s valuation

As discussed earlier, Pfizer (PFE) reported 1% growth in revenues to $13.7 billion during 4Q17 as compared to revenues of $13.6 billion during 4Q16. Pfizer surpassed Wall Street analysts’ estimates for EPS, but missed estimates for revenues and reported EPS of $0.62 on revenues of ~$13.7 billion as compared to the estimates of $0.56 on revenues of ~$13.7 billion during 4Q17. The below chart compares the reported EPS with analysts’ estimated EPS since 1Q16.

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Forward PE

PE multiples represent what one share can buy for an equity investor. Pfizer was trading at a forward PE multiple of ~11.7x on February 7, 2018, as compared to the industry average of ~16.1x. Some of the competitors including companies like Merck (MRK), Eli Lilly (LLY), and Johnson & Johnson (JNJ) are trading at higher forward PE multiples of 13.4x, 15.6x, and 16.0x, respectively, as compared to Pfizer.

Forward EV-to-EBITDA

On a capital-structure-neutral-basis, Pfizer currently trades at ~10.2x, which is much lower than the industry’s average of ~13.2x as of February 7, 2018. Merck (MRK), Eli Lilly (LLY), and Johnson & Johnson (JNJ) are trading at higher forward EV-to-EBITDA multiples of 11.1x, 12.6x, and 12.2x, respectively, as compared to Pfizer.

The SPDR S&P Pharmaceuticals ETF (XPH) holds 81.7% of its total investments in pharmaceuticals companies including 4.4% of its total investments in Pfizer (PFE), 4.6% in Merck (MRK), 4.0% in Eli Lilly (LLY), and 4.2% in Johnson & Johnson (JNJ).

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