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.
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.
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).