TLDR: My fairvalue calculation for PFE is at $31. Morningstar is at $32.
Warning: this is my non-kosher valuation. Non-kosher because my method prioritises for being "roughly correct vs precisely wrong". For example, I use 9% discount rate even though morningstar has the WACC of PFE at 7.1% and Cost of Equity at 7.5%. The 2nd thing that is non-kosher is that i like to use adjusted EPS as a proxy for FCF. This means that i will only invest if the FCF/NI is above certain treshhold, which also means that many companies will be excluded from my investment consideration. The 2nd point has caused a lot of violent reaction from redditors here, you have been warned.
Preparation: Check on FCF/NI
|Metric|TTM|2025|2024|2023|2022|2021|2020|2019|2018|2017|2016| |:-|:-|:-|:-|:-|:-|:-|:-|:-|:-|:-|:-| |Free Cash Flow/Net Income|1.27|1.17|1.22|2.26|0.83|1.36|1.21|0.61|1.22|0.67|1.93|
Excluding TTM, the average FCF/NI is >1.
Scenario A: From the table, analysts Estimate that it will take 10 year for Pfizer to earn roughly back to 2025 earnings.
|Year|Analyst EPS|EPS|Discounted| |:-|:-|:-|:-| |0|December 2025|3.22|3.22| |1|December 2026|2.96|2.716| |2|December 2027|2.84|2.390| |3|December 2028|2.41|1.861| |4|December 2029|2.24|1.587| |5|December 2030|2.34|1.521| |6|December 2031|2.47|1.473| |7|December 2032|2.55|1.395| |8|December 2033|2.79|1.400| |9|December 2034|2.78|1.280| |10|December 2035|3.06|1.293|
if we assume that after Pfizer returns back to 2025 nos, they will cease to grow past the 3.06 nos, ie. they will earn 3.06 every year forever.
The IV Calculation becomes $31.277
Scenario B: From the bottom table, management says that after 2028, they will start to grow revenue in high single digit for the next 5 years. This is from the latest Q1 earnings conference call. A check on its past operating leverage shows that earnings will grow more than revenue. To be conservative, i assume that operating leverage to be 1:1. And i use 9% growth for 2029 and 2030.
|Index|Year|Manage Proj EPS|Discounted| |:-|:-|:-|:-| |0|December 2025|3.22|3.22| |1|December 2026|2.96|2.716| |2|December 2027|2.84|2.390| |3|December 2028|2.41|1.861| |4|December 2029|2.63|1.861| |5|December 2030|2.86|1.861|
Like the above scenario A, we assume that after 2030, they will only manage to earn 2.86 a year forever. (even though management says they will be in a period of HSD growth for the next 5 years after 2028)
"Our recent settlement agreements resolving infringement of patents related to VYNDAMAX have the potential to change the growth profile of the company significantly post-2028. This gives us greater confidence that starting in 2029, we will enter a five-year period of high single-digit revenue CAGR.**"
The IV Calculation becomes $31.342
Some observation:
isn't it strange that Pfizer is worth the same if they recover in 5 years time versus 10 years time ? Well Lucy Diamonds broke out the differences for me:
|Value Component|Scenario 1 (10-Year)|Scenario 2 (5-Year)|The Difference| |:-|:-|:-|:-| |1. PV of Interim Cash Flows|$16.92 (10 years of cash)|$10.69 (5 years of cash)|+$6.23 (Scenario 1 wins)| |2. PV of Terminal Value|$14.36 (Starts in Year 10)|$20.65 (Starts in Year 5)|+$6.29 (Scenario 2 wins)| |Total Intrinsic Value|$31.28|$31.34|Basically Flat|
Morningstar fair value calculation for Pfizer is $32 while CFRA went on a tangent and has a fair value of $12.98 for Pfizer
(Disclosure: i own a small dollop of Pfe).