As part of a new series, each week we’re going to conduct a DCF on one of the companies in our screens. This week the stock is Pfizer Inc (PFE). We currently have the stock on an Acquirers Multiple of 6.60. The stock is currently priced at $35.64.
Profile
Pfizer is one of the world’s largest pharmaceutical firms, with annual sales close to $50 billion (excluding COVID-19 product sales). While it historically sold many types of healthcare products and chemicals, now, prescription drugs and vaccines account for the majority of sales. Top sellers include pneumococcal vaccine Prevnar 13, cancer drug Ibrance, cardiovascular treatment Eliquis, and immunology drug Xeljanz. Pfizer sells these products globally, with international sales representing close to 50% of its total sales. Within international sales, emerging markets are a major contributor.
Inputs
Discount Rate: 8%
Terminal Growth Rate: 2%
Forecasted Free Cash Flows (FCFs):
| Year | FCF |
| 2023 | $20.2 billion |
| 2024 | $22.4 billion |
| 2025 | $24.8 billion |
| 2026 | $27.3 billion |
| 2027 | $29.9 billion |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = $508.3billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5) = 345.94 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = $98 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 443.95 billion
Net Debt
Net Debt = Total Debt – Total Cash = 34.45 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 409.50 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $72.54 per share
Conclusion
| DCF Value | $72.54 |
| Current Price | $35.64 |
| Margin of Safety | 50.87% |
Based on the DCF valuation, Pfizer is currently undervalued. The DCF value of $72.54 per share is higher than the current market price of $35.64 which indicates that the stock is undervalued. Margin of Safety is 50.87%.
It’s important to note that this valuation is based on the assumptions and inputs provided, and it’s always recommended to consider multiple valuation methods and conduct further analysis before making investment decisions.
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6 Comments on “What Is The Real Value Of Pfizer Inc (PFE) Using A Simple DCF”
You jump from 115bn to 243bn. What’s the bridge?
Thanks K2. Glitch in my spreadsheet. I’ve updated and simplified calculations.
Hi Johnny, I’m learning and confused, could you pls explain “Terminal Value = FCF * (1 + g) / (r – g) = $345.2 billion”.
If r = 8% and g = 3% and FCF = 29.9bn, then 29.9bn*1.03/0.05 = $615.9bn??
And also “Present Value of FCFs = ∑ (FCF / (1 + r)^n) = $274.68 billion”. Based on FCF’s below, ∑ FCF’s would = $98.0bn??
2023 $20.2 billion /1.08^1 = 18.70
2024 $22.4 billion /1.08^2 = 19.20
2025 $24.8 billion /1.08^3 = 19.69
2026 $27.3 billion /1.08^4 = 20.07
2027 $29.9 billion /1.08^5 = 20.35
So EV = 615.9bn + 98.0bn = $713.9bn and $73.36 per share? May be better value depending on maths?! Thanks for help:)
Thanks Raider. This is how I calculated Terminal Value and Present Value of FCF’s. Happy to be corrected if my calculation is incorrect:
Terminal Value = FCF * (1 + g) / (r – g) = $345.2 billion
* FCF = Forecasted Free Cash Flow in Year 5 = $29.9 billion
* g = Terminal Growth Rate = 3%
* r = Discount Rate = 8%
= $29.9 billion * (1 + 0.03) / (0.08 – 0.03)
= $345.2 billion
————————————————
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = $274.68 billion
FCF = Forecasted Free Cash Flows
r = Discount Rate = 8%
n = Number of years = 5
= $20.2 billion / (1 + 0.08)^1 + $22.4 billion / (1 + 0.08)^2 + $24.8 billion / (1 + 0.08)^3 + $27.3 billion / (1 + 0.08)^4 + $29.9 billion / (1 + 0.08)^5
= $274.68 billion
Thanks Johnny, I’ve checked a few times and think something weird may be going on with your spreadsheet and/or calcs?
Re Terminal Value: $29.9 billion * (1 + 0.03) / (0.08 – 0.03) doesn’t equal $345.2bn;
$29.9bn*1.03 = $30.8bn, then divide that $30.8bn by 0.05 and you definately get $615.9bn, not $345.2bn…
Re ∑ Present Values FCF’s, $274.68 billion over 5 years would mean roughly $55bn FCF per year… which is way more than any of the forecast FCF’s – even before discounting?! (Highest FCF was $29.9bn!)
If Terminal Value is = $615.9bn + ∑ Present Values FCF’s = $98.0bn, then EV = $713.9bn, divided by 5.65bn shares, per share IV would be $126.36; a better bargain again!
Thanks for your reply 🙂
Great stuff! Even better! I’ll make the adjustments.