Stock Analysis on Net
Stock Analysis on Net

Pfizer Inc. (NYSE:PFE)

Present Value of Free Cash Flow to the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Pfizer Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.17%
01 FCFF0 6,669
1 FCFF1 6,608 = 6,669 × (1 + -0.91%) 6,109
2 FCFF2 6,644 = 6,608 × (1 + 0.54%) 5,678
3 FCFF3 6,777 = 6,644 × (1 + 2.00%) 5,354
4 FCFF4 7,011 = 6,777 × (1 + 3.45%) 5,120
5 FCFF5 7,355 = 7,011 × (1 + 4.91%) 4,965
5 Terminal value (TV5) 235,978 = 7,355 × (1 + 4.91%) ÷ (8.17% – 4.91%) 159,308
Intrinsic value of Pfizer Inc. capital 186,534
Less: Preferred stock, no par value, at stated value (book value) 0
Less: Debt (fair value) 71,350
Intrinsic value of Pfizer Inc. common stock 115,184
 
Intrinsic value of Pfizer Inc. common stock (per share) $20.40
Current share price $25.26

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.

Weighted Average Cost of Capital (WACC)

Pfizer Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 142,638 0.67 10.29%
Preferred stock, no par value, at stated value (book value) 0 0.00 0.00%
Debt (fair value) 71,350 0.33 3.95% = 4.43% × (1 – 10.84%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 5,646,778,425 × $25.26
= $142,637,623,015.50

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (21.00% + 9.60% + 7.60% + 6.40% + 9.60%) ÷ 5
= 10.84%

WACC = 8.17%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Pfizer Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense 2,209 1,238 1,291 1,449 1,574
Discontinued operations, net of tax (14) 6 (434) 2,631 4
Net income attributable to Pfizer Inc. 2,119 31,372 21,979 9,616 16,273
 
Effective income tax rate (EITR)1 21.00% 9.60% 7.60% 6.40% 9.60%
 
Interest expense, after tax2 1,745 1,119 1,193 1,356 1,423
Add: Cash dividends declared, preferred stock — — — — 1
Add: Cash dividends declared, common stock 9,316 9,037 8,816 8,571 8,174
Interest expense (after tax) and dividends 11,061 10,156 10,009 9,927 9,598
 
EBIT(1 – EITR)3 3,878 32,485 23,606 8,341 17,692
 
Short-term borrowings, including current portion of long-term debt 10,350 2,945 2,241 2,703 16,195
Long-term debt, excluding current portion 61,538 32,884 36,195 37,133 35,955
Total Pfizer Inc. shareholders’ equity 89,014 95,661 77,201 63,238 63,143
Total capital 160,902 131,490 115,637 103,074 115,293
Financial Ratios
Retention rate (RR)4 -1.85 0.69 0.58 -0.19 0.46
Return on invested capital (ROIC)5 2.41% 24.71% 20.41% 8.09% 15.35%
Averages
RR -0.06
ROIC 14.19%
 
FCFF growth rate (g)6 -0.91%

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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 2,209 × (1 – 21.00%)
= 1,745

3 EBIT(1 – EITR) = Net income attributable to Pfizer Inc. – Discontinued operations, net of tax + Interest expense, after tax
= 2,119 – -14 + 1,745
= 3,878

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,878 – 11,061] ÷ 3,878
= -1.85

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,878 ÷ 160,902
= 2.41%

6 g = RR × ROIC
= -0.06 × 14.19%
= -0.91%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (213,988 × 8.17% – 6,669) ÷ (213,988 + 6,669)
= 4.91%

where:

Total capital, fair value0 = current fair value of Pfizer Inc. debt and equity (US$ in millions)
FCFF0 = the last year Pfizer Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Pfizer Inc. capital

FCFF growth rate (g) forecast

Pfizer Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -0.91%
2 g2 0.54%
3 g3 2.00%
4 g4 3.45%
5 and thereafter g5 4.91%

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)
= -0.91% + (4.91% – -0.91%) × (2 – 1) ÷ (5 – 1)
= 0.54%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.91% + (4.91% – -0.91%) × (3 – 1) ÷ (5 – 1)
= 2.00%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.91% + (4.91% – -0.91%) × (4 – 1) ÷ (5 – 1)
= 3.45%