Estimating Value Of Pfizer’s Consumer Health Business Amid Rumours Of Sale/Spin-off
According to a report by Reuters, Pfizer Inc. (NYSE: PFE) management is considering the potential sale or spin-off of its consumer health business. While the article reports that the value of the business is estimated to be around $14 billion. We believe the value of the division is much more. Our base case estimate of the intrinsic value is about $18 billion.
You can use our widget embedded below to arrive at your own estimate of value:
Our price estimate of $36 per share for Pfizer is about 14% above the current market price
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According to our estimates, the division contributes over 7% to total value of Pfizer. The business reported an annual sales of $3.4 billion in 2015. We estimate the division to grow at a CAGR of 2.5% over our forecast period. We estimate the gross-margin to around 80%. We have used a terminal growth rate (g) of 1% and weighted average cost of capital (WACC) at 7.2%. Using discounted cash flow methodology we arrived at an intrinsic value of over $18 billion. The table below shows sensitivity analysis for WACC and terminal growth rate (g):
Presently, Pfizer is trading at an Enterprise Value-to-Sales ratio of about 4.2x based on trailing twelve months sales. Using this ratio and consumer healthcare divisions annual sales of about $3.4 billion we get the enterprise value of the division at slightly over $14 billion. This underlines that our bases case estimate of $18 billion appears to be in range of reasonable estimate.
The segment has strong potential suitors such as Reckitt Benckiser and GlaxoSmithKline. In a scenario where the management decides to divest this business, we expect the deal should be valued significantly higher than $14 billion.
Have more questions about Pfizer? See the links below.
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