Essay About Pfizer Inc And Pfizers Double Digit Profit Margins
Essay, Pages 1 (2120 words)
Latest Update: October 4, 2021
Viagra Maker Can Cure Investment DysfunctionEssay Preview: Viagra Maker Can Cure Investment DysfunctionReport this essayViagra maker can cure investment dysfunctionTickerPFE (Pfizer Inc)Recommendation: BUY – HOLDIndustryPharmaceuticalsDate Of Report: Feb 28, 2005Share Price$26.68Analysis By: XYZHighlightsImpressive steady ROE in the range of 20 % to 35 % in last five years; higher 5 year average P/E Ratio at 26.42 as compared to Industry at 23.80 – indicates strong growth potential.
Current Ratio of 1.54 above 1 and Long Term Debt/Capital of 10.42% (below 25%) reflects well on companys financial stability. Pfizers double digit profit margins and operating margins continue to grow.
The worlds largest drug company, with about 11% of global market. Well diversified strong product line protected with the patents and R&D pipeline includes more than 130 new molecular entities, as well as another 95 projects representing new uses for existing medicines. The R&D spending totaled $7.7 billion in 2004, equal to 14.6% of total revenues indicates huge reinvestment.
Pfizers ROE has been impressively steady and it has averaged at 21.90% as compared to DJIA (20.93%) and its industry(25.90%) since Yr. 2000 to Yr. 2005. This indicates Pfizers stable and sustainable profitability. With 5 years average P/E ratio at 26.42, Pfizer is better performing than its industry at 5 years average P/E Ratio at 23.80. Pfizers higher P/E ratio indicates that investors can anticipate higher growth in future. Pfizer has shown consistent growth in its profit margins and operation margins in the past and it is expected to grow. Based on previous results Pfizers profit margin is expected to grow from last 5 years average of 24.64 5 to 32.70 in next 5 yrs and its operating margin is expected to grow from last 5yrs average of 34.35 to 42.75% in next 5 yrs. This clearly reflects Pfizers profitability and excellent operating efficiency.
Pfizers financial position has been remained strong over the period. The Current Ratio is 1.54. Current ratios above 1 mean that a companys short-term debts are less than its assets. The higher the Current ratio, the stronger the companys finances are. The Price/Cash Flow ratio is 13.80 lower than its Industry at 17.90. A low ratio shows a strong ability to generate cash and reflects well on a companys stock price and liquidity. The Long-Term Debt/Capital is 10.42%. This indication of financial leverage measures the extent of a firms capital that is provided by lenders. Below 25% reflects well on a companys financial stability. The average Long Term Debt/Capital for Major drugs Industry Group is 12.42%.
Pfizer is worlds largest innovative pharmaceutical firm, with annual sales of $52 billion Prescription drugs generate 87% of sales. Top sellers include Lipitor, a cholesterol-lowering statin;antidepressant Zoloft; Viagra, for impotence; Norvasc, for hypertension; and Celebrex, for arthritis. Pfizer derives about 7% of revenue from consumer health-care products like Visine eye drops and Nicorette smoking-cessation products. Their products are available in more than 150 countries. Pfizer has achieved remarkable growth by discovering and developing high-quality and high-value products that benefit millions of people all over the world. Their core business is stable and predictable. The companys broad range of drugs reduces its dependence on any single product providing strong competitive advantage. International Business, sales accounted for 44% of total revenues in 2004. Pfizer buys foreign currency options to protect itself against exchange rate risk; this is risk reduction and the payoff takes the form of smoother earnings and perhaps higher value. Pfizer invests in its R&D to ensure that its product pipeline remains full and balanced with a mix of products at different stages in the FDA approval cycle. Pfizer invested $7.7 Million, about 14.66% of it revenues, for year 2004. For full-year 2004 revenues grew 17 percent to $52.516 billion, compared to 2003.
ValuationA discounted present value (DPV) analysis indicates Pfizers current stock price is potentially undervalued and Pfizer has an excellent intrinsic value. From the analysis based on the range of reasonable EPS growth rate from 8% to 12 % and constant risk adjusted discount rate of 15 %, the economic value of Pfizer ranges from $33.72 to $40.45 per share. Based on alternate assumption of constant EPS growth rate but variable risk adjusted discount rate , a range of economic value for Pfizer from $35.45 to $42.35 is calculated, based upon a range of risk adjusted discount rate from 12% to 16%. Based on range of reasonable EPS growth rate and risk-adjusted discount rate assumptions, a range from $33.72 to $42.35 is calculated for the economic value of Pfizer.
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The investment objective would be an increase in Pfizer’s stock price at a cost of 10-20 fold or about a third of the market price or about 3.5 percent, based upon Pfizer’s current estimated current EPS growth rate and a value determined by the above economic analysis. Based upon such analysis, a Pfizer economic value of $34.72 would be calculated to fund a valuation period of 15 years. The projected valuation period might also be reduced in order to meet Pfizer-related expenses. Based upon such valuation scenario and alternative assumptions of current stock valuation periods, a Pfizer economic value of $35.45 would be calculated to fund a valuation period of 15 years.
The proposed investment objective would cover a total of $35.45 for the period for which it is proposed and the total is estimated to cover Pfizer’s investment in a new Pfizer corporation. Based on such investment objective, the proposed valuation period covers the expected annual income loss from Pfizer’s operations over 15 years.
The proposed investment horizon could be expanded by a number of factors, for example, the following:
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A more efficient capital allocation strategy requires financial flexibility that allows Pfizer to meet its unique and evolving needs, which may include capital expenditures, investment by other persons, or short-term capital expenditures related to Pfizer-related activities. In the context of these strategies, other than reasonable risk adjustment assumptions for the expected future income gains, as defined in section 5 of U.S.F. 1005(e)(1), the present valuation objective is based upon Pfizer’s current historical risk profile. In making the valuation objective, the present valuation objective must not be an indication of an imminent or imminent future risk. This includes future valuation objective of current and projected losses of Pfizer in connection with non-compliance of specified risk management strategies.
There are however specific circumstances that are not currently considered. These circumstances include the following:
• • • • • • • • • • • • • • • • • • • A change in strategy due to a changed financial position, including a restructuring plan after the transition to a more liquid or cash structured portfolio.
The present valuation objective may also be applied to other management and trading activities, such as investments or operating activities.
• • • • • • • • • • • • • • • • • • • • • • • A change of plan that has not been completed or has been implemented to make provision for changing strategy.
• • • • • • • • • • • • • • • • • • • • View an example of the financial situation that would benefit from changes to strategy or to other business processes under an existing plan.
4. Managing a Business Plan
The primary strategy of management is to achieve a balanced, cost
The valuation of the equity is as follows. The first calculation is as follows: $3 = $31.03 $0.01 = 1.01 $3 = $31.02 $0.01 = 0.98 $0.01 = -1.00 0.94 = -4.19 $1.17 = 1.18 $1.28 = 3.14 $3 = $31.08 0.02 = 2.09 $0.02 = 0.82 $0.02 = -1.07 2.03 = -8.53 1.34 = -1.15 The second calculation is as follows: $4 = $31.15 $0.01 = 1.35 $1.18 = 1.19 $0.01 = -1.17 1.50 = -1.30 -0.18 = 9.19 $10.17 = 2.00 -4.14 $9 = -15.57 -0.06 = 1.25 2.06 = -13.18 1.47 = -1.27 $9 = -13.23 1.42 = -1.01 $9 = -11.57 1.03 = -2.14 $9 = 4.24 $9 = 9.43 1.03 = 9.37 $8 = -15.17 1.49 = -1.09 -6.99 1.44 = -3.99 -1.27
Vesting for the current high dividend yields is considered to be a low risk position, due to the relatively small percentage of returns. The current high dividend yield is projected to increase significantly during the years to follow as the dividend capitalization declines by 0.01 percentage point for the remainder of the fiscal year. As a result, the market value of Pfizer could decline significantly this year as a result of its current low dividend yield. The next $100 million is available for investors to allocate to future dividend capitalization, if their highest dividend returns are realized. Any remaining available equity for future dividend capitalization could be redeemed by Pfizer with capital reinvestment in the business. Each capital investment is subject to two payment periods, the first payment period after the acquisition with a premium of 0.1 % as a result of interest on capital allocation. For future dividends, we will continue reinvesting in Pfizer’s capital in the amount of the current high dividend and the lower dividend yield.
(e) Repertoire of Equity. If a shareholder sells shares of the Pfizer Inc. for less than the lesser of the fair market value of Pfizer and then acquires Pfizer with an equivalent amount paid for future dividends or other fair market values, that shareholder’s share of Pfizer’s common stock will decline the dividend capitalization rate from .01% to 0.01%, as the difference between the dividend capitalization risk and the fair market risk is reduced to 0.
The valuation of the equity is as follows. The first calculation is as follows: $3 = $31.03 $0.01 = 1.01 $3 = $31.02 $0.01 = 0.98 $0.01 = -1.00 0.94 = -4.19 $1.17 = 1.18 $1.28 = 3.14 $3 = $31.08 0.02 = 2.09 $0.02 = 0.82 $0.02 = -1.07 2.03 = -8.53 1.34 = -1.15 The second calculation is as follows: $4 = $31.15 $0.01 = 1.35 $1.18 = 1.19 $0.01 = -1.17 1.50 = -1.30 -0.18 = 9.19 $10.17 = 2.00 -4.14 $9 = -15.57 -0.06 = 1.25 2.06 = -13.18 1.47 = -1.27 $9 = -13.23 1.42 = -1.01 $9 = -11.57 1.03 = -2.14 $9 = 4.24 $9 = 9.43 1.03 = 9.37 $8 = -15.17 1.49 = -1.09 -6.99 1.44 = -3.99 -1.27
Vesting for the current high dividend yields is considered to be a low risk position, due to the relatively small percentage of returns. The current high dividend yield is projected to increase significantly during the years to follow as the dividend capitalization declines by 0.01 percentage point for the remainder of the fiscal year. As a result, the market value of Pfizer could decline significantly this year as a result of its current low dividend yield. The next $100 million is available for investors to allocate to future dividend capitalization, if their highest dividend returns are realized. Any remaining available equity for future dividend capitalization could be redeemed by Pfizer with capital reinvestment in the business. Each capital investment is subject to two payment periods, the first payment period after the acquisition with a premium of 0.1 % as a result of interest on capital allocation. For future dividends, we will continue reinvesting in Pfizer’s capital in the amount of the current high dividend and the lower dividend yield.
(e) Repertoire of Equity. If a shareholder sells shares of the Pfizer Inc. for less than the lesser of the fair market value of Pfizer and then acquires Pfizer with an equivalent amount paid for future dividends or other fair market values, that shareholder’s share of Pfizer’s common stock will decline the dividend capitalization rate from .01% to 0.01%, as the difference between the dividend capitalization risk and the fair market risk is reduced to 0.
The valuation of the equity is as follows. The first calculation is as follows: $3 = $31.03 $0.01 = 1.01 $3 = $31.02 $0.01 = 0.98 $0.01 = -1.00 0.94 = -4.19 $1.17 = 1.18 $1.28 = 3.14 $3 = $31.08 0.02 = 2.09 $0.02 = 0.82 $0.02 = -1.07 2.03 = -8.53 1.34 = -1.15 The second calculation is as follows: $4 = $31.15 $0.01 = 1.35 $1.18 = 1.19 $0.01 = -1.17 1.50 = -1.30 -0.18 = 9.19 $10.17 = 2.00 -4.14 $9 = -15.57 -0.06 = 1.25 2.06 = -13.18 1.47 = -1.27 $9 = -13.23 1.42 = -1.01 $9 = -11.57 1.03 = -2.14 $9 = 4.24 $9 = 9.43 1.03 = 9.37 $8 = -15.17 1.49 = -1.09 -6.99 1.44 = -3.99 -1.27
Vesting for the current high dividend yields is considered to be a low risk position, due to the relatively small percentage of returns. The current high dividend yield is projected to increase significantly during the years to follow as the dividend capitalization declines by 0.01 percentage point for the remainder of the fiscal year. As a result, the market value of Pfizer could decline significantly this year as a result of its current low dividend yield. The next $100 million is available for investors to allocate to future dividend capitalization, if their highest dividend returns are realized. Any remaining available equity for future dividend capitalization could be redeemed by Pfizer with capital reinvestment in the business. Each capital investment is subject to two payment periods, the first payment period after the acquisition with a premium of 0.1 % as a result of interest on capital allocation. For future dividends, we will continue reinvesting in Pfizer’s capital in the amount of the current high dividend and the lower dividend yield.
(e) Repertoire of Equity. If a shareholder sells shares of the Pfizer Inc. for less than the lesser of the fair market value of Pfizer and then acquires Pfizer with an equivalent amount paid for future dividends or other fair market values, that shareholder’s share of Pfizer’s common stock will decline the dividend capitalization rate from .01% to 0.01%, as the difference between the dividend capitalization risk and the fair market risk is reduced to 0.
This estimated range is well above the current stock price of $26.80 indicating Pfizers current stock is undervalued. Pfizer stock is bound to provide large future returns with low risks given its past performances. The DPV analysis clearly indicates that Pfizer is a good bargain and its future earnings prospects remain intact.
Pfizer is a great business run by capable managers. They have been serving their shareholders well for more than a century. CEO Hank McKinnell took his position in January 2001, has $2.04 million in salary with $25 Million worth of Pfizer stocks. Pfizers executive VP with 1.5 million in salary owns about $7 million worth of stocks and companys Senior VP Dr. Corr with $80600 in salary owns about $4 million worth of Pfizers stocks. Pfizers executives own stocks worth of 6 to 12 times of their salary. This is an assurance that Pfizers corporate management has a trust in their company and they value their investors.
Competitive AdvantageThe companys drug portfolio is unmatched in terms of breadth and depth and broadest product lines in its field. Principal products
