Pfizer’s 1Q16 Earnings: How Has Its Valuation Changed?
Did Pfizer’s 1Q16 Earnings Beat Analysts' Estimates?
Valuation multiples
Forward PE (price-to-earnings) and EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples are two of the best valuation multiples to use when valuing Pfizer (PFE) and other large pharmaceutical companies, given the relatively stable and visible nature of their earnings.
Forward PE multiple
PE multiples are widely available and represent what one share can buy. On May 4, 2016, Pfizer was trading at a forward PE multiple of ~13.9x. Based on Pfizer’s multiple ranges over the last five years, Pfizer’s current valuation is neither high nor low. Over the last five years, Pfizer’s PE multiple has ranged from ~7x to ~16x.
Pfizer’s valuation multiple has also followed the industry’s overall trend over the last five years. Whether the healthcare sector’s forward PE multiple rises or falls, Pfizer will definitely be affected. The industry is trading at a forward PE multiple of ~18.2x. Johnson & Johnson (JNJ), Merck and Company (MRK), Eli Lilly and Company (LLY), and AbbVie (ABBV) have forward PE multiples of 16.7x, 14.8x, 20.6x, and 12.1x, respectively.
EV-to-EBITDA multiple
On a capital structure–neutral basis, Pfizer is trading at ~10.5x, which is much lower than the industry average of ~13.5x. Its competitors Johnson & Johnson (JNJ), Merck and Company (MRK), and Eli Lilly and Company (LLY) have forward EV-to-EBITDA multiples of 11.4x, 10.7x, and 14.9x, respectively.
The above multiples represent improvement in estimates and valuations for Pfizer, which is a positive sign for investors. To diversify risk, you can invest in the iShares Core High Dividend ETF (HDV), which holds 6.1% of its total assets in Pfizer, or the First Trust Morningstar Dividend Leaders Index Fund (FDL), which holds 6.3% of its total assets in Pfizer.
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