Company Description: Pfizer Inc. ranks as one of the world's largest pharmaceutical companies, offering a wide range of drugs across a broad therapeutic spectrum.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
PFE is trading at a discount to only 3.) above. When also considering the NPV MMA Differential, the stock is trading at a 80.5% premium to its calculated fair value of $25.33. PFE did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
PFE earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45% PFE earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1901 and has increased its dividend payments for 16 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $363 is below the $1,900 target I look for in a stock that has increased dividends as long as PFE has. The stock's current yield of 3.5% exceeds the 3.12% estimated 20-year average MMA rate.
Peers: The company’s peer group includes: Eli Lilly and Company (LLY) with a 1.3% yield, Bristol-Myers Squibb Company (BMY) with a 3.2% yield and Merck & Co., Inc. (MRK) with a 3.2%.
Conclusion: PFE did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks PFE as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $25.29 before PFE's NPV MMA Differential increased to the $1,900 minimum that I look for in a stock with 16 years of consecutive dividend increases. At that price the stock would yield 6.3%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,900 NPV MMA Differential, the calculated rate is 8.4%. This dividend growth rate is higher than the 2.6% used in this analysis, thus providing no margin of safety. PFE has a risk rating of 1.75 which classifies it as a Medium risk stock.
PFE's drug portfolio is unmatched in terms of breadth and depth in the global drug market. The company's dividend metrics improved including a Free Cash Flow Payout of 32% (down from 43%) and Debt to total Capital of 32% (down from 35%), both are below my desired maximums. The stock is trading well above my calculated fair value of $25.33 per share. This will keep me from giving it serious consideration as an addition to my Dividend Growth Portfolio for now.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in PFE (0.0% of my Dividend Growth Portfolio).
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