The stock of Pfizer (NYSE:PFE, 30-year Financials) shows every sign of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $39.74 per share and the market cap of $221.7 billion, Pfizer stock shows every sign of being fairly valued. GF Value for Pfizer is shown in the chart below.
Because Pfizer is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 6.20% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Pfizer has a cash-to-debt ratio of 0.32, which which ranks worse than 71% of the companies in Drug Manufacturers industry. The overall financial strength of Pfizer is 5 out of 10, which indicates that the financial strength of Pfizer is fair. This is the debt and cash of Pfizer over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Pfizer has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $41.9 billion and earnings of $1.71 a share. Its operating margin is 20.90%, which ranks better than 86% of the companies in Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of Pfizer at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Pfizer over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Pfizer's 3-year average revenue growth rate is worse than 78% of the companies in Drug Manufacturers industry. Pfizer's 3-year average EBITDA growth rate is -9.4%, which ranks worse than 73% of the companies in Drug Manufacturers industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Pfizer's return on invested capital is 5.24, and its cost of capital is 5.27. The historical ROIC vs WACC comparison of Pfizer is shown below:
In closing, the stock of Pfizer (NYSE:PFE, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 73% of the companies in Drug Manufacturers industry. To learn more about Pfizer stock, you can check out its 30-year Financials here.
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