Monday, March 17, 2008

* Stock Analysis: Pfizer Inc. (PFE)

Linked here is a PDF copy of my detailed analysis of Pfizer Inc. (PFE) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: Pfizer, Inc. engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals in the United States, Europe, Canada, Asia, and Latin America.

Fair Value: I consider 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 and 4.) Graham Number. PFE is trading at a discount to all but 4.) above. If I exclude the high and low valuation, and average the remaining two valuations, PFE is trading at a 16.7% discount. PFE earns a Star for trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. PFE earned a Star in 3.) above. It has increased its dividend for 10+ years. However, a Star is deducted because the current dividend payout of 96% exceeds 10-year average of 77% by more than 15 points.

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)? 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. and 2.) Years to >MMA. PFE earned both available Stars in this section. Its current yield of 6.04% is in excess of the high-yield MMA rate of 4.61% and its NPV MMA Diff. is $37,063.

Other: PFE is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. It has increased its quarterly cash dividend payments for 41 consecutive years. PFE recently raised its dividend 10%.

Conclusion: PFE earned one Star in the Fair Value section, a net of zero Stars in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a total of three Stars, which rates it as a 3 Star-Hold.

PFE is at a cross-road. Earnings have declined somewhat as key drugs come off patent. Its Lipitor patent expires in 2010. Lipitor accounts for about a fourth PFE's sales. PFE has not introduced a "home-run" drug for sometime. However, the near-term (~2 years) outlook is good. I continue to add PFE in modest amounts as my allocation and PFE's valuation allows .

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 own shares of PFE (2.4% of my Income Portfolio).

What are your thoughts on PFE?

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