# Pfizer Inc. (NYSE:PFE)

## Dividend Discount Model (DDM)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

### Intrinsic Stock Value (Valuation Summary)

Pfizer Inc., dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 8.25%
0 DPS01 1.44
1 DPS1 1.52 = 1.44 × (1 + 5.28%) 1.40
2 DPS2 1.59 = 1.52 × (1 + 5.04%) 1.36
3 DPS3 1.67 = 1.59 × (1 + 4.80%) 1.32
4 DPS4 1.75 = 1.67 × (1 + 4.56%) 1.27
5 DPS5 1.82 = 1.75 × (1 + 4.33%) 1.22
5 Terminal value (TV5) 48.46 = 1.82 × (1 + 4.33%) ÷ (8.25%4.33%) 32.61
Intrinsic value of Pfizer Inc.’s common stock (per share) \$39.18
Current share price \$38.33

Based on: 10-K (filing date: 2020-02-27).

1 DPS0 = Sum of the last year dividends per share of Pfizer Inc.’s common stock. 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)

 Assumptions Rate of return on LT Treasury Composite1 RF 1.21% Expected rate of return on market portfolio2 E(RM) 11.79% Systematic risk of Pfizer Inc.’s common stock βPFE 0.67 Required rate of return on Pfizer Inc.’s common stock3 rPFE 8.25%

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).

3 rPFE = RF + βPFE [E(RM) – RF]
= 1.21% + 0.67 [11.79%1.21%]
= 8.25%

### Dividend Growth Rate (g)

#### Dividend growth rate (g) implied by PRAT model

Pfizer Inc., PRAT model

Average Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US\$ in millions)
Cash dividends declared, common stock 8,174  8,060  7,789  7,446  7,141
Cash dividends declared, preferred stock
Net income attributable to Pfizer Inc. 16,273  11,153  21,308  7,215  6,960
Revenues 51,750  53,647  52,546  52,824  48,851
Total assets 167,489  159,422  171,797  171,615  167,460
Total Pfizer Inc. shareholders’ equity 63,143  63,407  71,308  59,544  64,720
Financial Ratios
Retention rate1 0.50 0.28 0.63 -0.03 -0.03
Profit margin2 31.44% 20.79% 40.55% 13.65% 14.24%
Asset turnover3 0.31 0.34 0.31 0.31 0.29
Financial leverage4 2.65 2.51 2.41 2.88 2.59
Averages
Retention rate 0.27
Profit margin 24.14%
Asset turnover 0.31
Financial leverage 2.61

Dividend growth rate (g)5 5.28%

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29).

2019 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)
= (16,2738,1741) ÷ (16,2731) = 0.50

2 Profit margin = 100 × (Net income attributable to Pfizer Inc. – Cash dividends declared, preferred stock) ÷ Revenues
= 100 × (16,2731) ÷ 51,750 = 31.44%

3 Asset turnover = Revenues ÷ Total assets
= 51,750 ÷ 167,489 = 0.31

4 Financial leverage = Total assets ÷ Total Pfizer Inc. shareholders’ equity
= 167,489 ÷ 63,143 = 2.65

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.27 × 24.14% × 0.31 × 2.61 = 5.28%

#### Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$38.33 × 8.25%\$1.44) ÷ (\$38.33 + \$1.44) = 4.33%

where:
P0 = current price of share of Pfizer Inc.’s common stock
D0 = the last year dividends per share of Pfizer Inc.’s common stock
r = required rate of return on Pfizer Inc.’s common stock

#### Dividend growth rate (g) forecast

Pfizer Inc., H-model

Year Value gt
1 g1 5.28%
2 g2 5.04%
3 g3 4.80%
4 g4 4.56%
5 and thereafter g5 4.33%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 5.28% + (4.33%5.28%) × (2 – 1) ÷ (5 – 1) = 5.04%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 5.28% + (4.33%5.28%) × (3 – 1) ÷ (5 – 1) = 4.80%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 5.28% + (4.33%5.28%) × (4 – 1) ÷ (5 – 1) = 4.56%