Stock Analysis on Net
Stock Analysis on Net

Pfizer Inc. (NYSE:PFE)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Pfizer Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 10.35%
01 FCFE0 40,738
1 FCFE1 44,669 = 40,738 × (1 + 9.65%) 40,481
2 FCFE2 46,313 = 44,669 × (1 + 3.68%) 38,036
3 FCFE3 45,254 = 46,313 × (1 + -2.29%) 33,682
4 FCFE4 41,519 = 45,254 × (1 + -8.25%) 28,005
5 FCFE5 35,614 = 41,519 × (1 + -14.22%) 21,770
5 Terminal value (TV5) 124,352 = 35,614 × (1 + -14.22%) ÷ (10.35% – -14.22%) 76,012
Intrinsic value of Pfizer Inc. common stock 237,986
 
Intrinsic value of Pfizer Inc. common stock (per share) $42.00
Current share price $25.10

Based on: 10-K (reporting date: 2023-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Pfizer Inc. common stock βPFE 0.62
 
Required rate of return on Pfizer Inc. common stock3 rPFE 10.35%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rPFE = RF + βPFE [E(RM) – RF]
= 4.65% + 0.62 [13.79% – 4.65%]
= 10.35%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Pfizer Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends declared, common stock 9,316 9,037 8,816 8,571 8,174
Cash dividends declared, preferred stock — — — — 1
Net income attributable to Pfizer Inc. 2,119 31,372 21,979 9,616 16,273
Revenues 58,496 100,330 81,288 41,908 51,750
Total assets 226,501 197,205 181,476 154,229 167,489
Total Pfizer Inc. shareholders’ equity 89,014 95,661 77,201 63,238 63,143
Financial Ratios
Retention rate1 -3.40 0.71 0.60 0.11 0.50
Profit margin2 3.62% 31.27% 27.04% 22.95% 31.44%
Asset turnover3 0.26 0.51 0.45 0.27 0.31
Financial leverage4 2.54 2.06 2.35 2.44 2.65
Averages
Retention rate 0.48
Profit margin 23.26%
Asset turnover 0.36
Financial leverage 2.41
 
FCFE growth rate (g)5 9.65%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income attributable to Pfizer Inc. – Cash dividends declared, common stock – Cash dividends declared, preferred stock) ÷ (Net income attributable to Pfizer Inc. – Cash dividends declared, preferred stock)
= (2,119 – 9,316 – 0) ÷ (2,119 – 0)
= -3.40

2 Profit margin = 100 × (Net income attributable to Pfizer Inc. – Cash dividends declared, preferred stock) ÷ Revenues
= 100 × (2,119 – 0) ÷ 58,496
= 3.62%

3 Asset turnover = Revenues ÷ Total assets
= 58,496 ÷ 226,501
= 0.26

4 Financial leverage = Total assets ÷ Total Pfizer Inc. shareholders’ equity
= 226,501 ÷ 89,014
= 2.54

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.48 × 23.26% × 0.36 × 2.41
= 9.65%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (142,241 × 10.35% – 40,738) ÷ (142,241 + 40,738)
= -14.22%

where:
Equity market value0 = current market value of Pfizer Inc. common stock (US$ in millions)
FCFE0 = the last year Pfizer Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Pfizer Inc. common stock

FCFE growth rate (g) forecast

Pfizer Inc., H-model

Microsoft Excel
Year Value gt
1 g1 9.65%
2 g2 3.68%
3 g3 -2.29%
4 g4 -8.25%
5 and thereafter g5 -14.22%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 9.65% + (-14.22% – 9.65%) × (2 – 1) ÷ (5 – 1)
= 3.68%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 9.65% + (-14.22% – 9.65%) × (3 – 1) ÷ (5 – 1)
= -2.29%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 9.65% + (-14.22% – 9.65%) × (4 – 1) ÷ (5 – 1)
= -8.25%