Is The Market Pricing Pfizer Fairly?

by Trefis Team
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We have a price estimate of $41 for Pfizer (NYSE:PFE), which is slightly above the current market price. The stock has been in the news recently after the U.S. President tweeted about the price hike for Pfizer’s drugs. The company has increased the prices for around 100 drugs this year. However, it is part of a periodic exercise that the company does partly to pass on any higher costs, and this trend can be seen for several pharmaceutical companies. The stock reacted with a mild decline on this news. The stock has seen an uptick of over 10% since February this year. However, we believe there is still some upside left for Pfizer’s stock. We have created an interactive dashboard analysis ~ A Look At Our $41 Price Estimate For Pfizer ~ that details our valuation for the company’s stock. You can modify the assumptions to generate your own estimate of the company’s value.

Expect Oncology And Legacy Pharma, Biosimilars & Others To Drive The Near Term Earnings Growth

We estimate the Oncology and Legacy Pharma, Biosimilars & Others segment revenue to drive the future growth for Pfizer. Oncology in particular will benefit from a ramp up in Ibrance sales. In addition, Xalkori will continue to do well given its higher pricing. Xalkori targets a certain type of non-small cell lung cancer (NSCLC). As such, its patient pool is limited, but strong pricing will likely aid the overall segment revenue growth. Looking at the company’s Legacy Pharma, Biosimilars & Others segment, we expect revenues to grow in mid-single digits in the near term, led by Eliquis, which has been on a strong run for a while now, and we expect this trend to continue in the near term, as the drug continues to increase its market share. We also expect the company to benefit from its biosimilars in the coming years. Currently, Pfizer has 6 biosimilars in phase 3 trials, which it is testing for blockbuster drugs, Avastin, Rituxan/MabThera, Herceptin, and Humira. These two segments will drive the earnings growth for Pfizer in the near term, in our view. 

While the stock hasn’t seen much growth year-to-date, we believe that there is still some upside to the stock price. Our $41 price estimate for Pfizer is based on $2.90 expected adjusted EPS in 2018, and a price to earnings multiple of 14x. Our revenue forecast of $53.50 billion represents a low single digit year-on-year growth. Our price estimate of $41 for Pfizer is at a 10% premium to the current market price. Having said that, the U.S. President’s tweet targeted the pharmaceutical companies for their price increases, and if there is any action taken against these companies, it will have a negative impact on the stocks. It has been argued that the price hikes for older drugs is not justifiable unless supported by new clinical evidence. Nevertheless, the price hikes hurts the government spending. For instance, a 10% price hike on AbbVie’s blockbuster drug Humira would cost the U.S. health system $1.2 billion, according to a media report. We currently maintain our price target of $41 for Pfizer, and any changes will be subject to any action, if taken by the U.S. Government, against the pharmaceutical companies.

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