Pfizer Stock Analysis Essay

1237 Words Apr 22nd, 2012 5 Pages
Pfizer Stock Analysis

Pfizer (NYSE: PFE) is involved in the development, manufacturing and marketing of pharmaceutical products. The industry is intensely competitive and there are a few unique characteristics. Pharmaceutical products have long and expensive development periods – upwards of ten years and $100 million depending on the nature of the drug and the scope of the clinical trials process. In order to encourage companies to engage in innovation, companies are given lengthy patent protection for their drugs upon receiving regulatory approval. This allows them to control rates so that they may recover the development cost. A product brought to market is often highly lucrative, so success in the industry depends largely on
…show more content…
This is much higher than the earnings yields of other stocks in its industry; hence it is extremely healthy in absolute terms. For this company to generate good returns for investors, it will probably only have to realize moderate growth in earnings or a higher valuation by the market. However the company is not very effective: the return on equity is at only 11.45%, way below the industry average of 26%, and return on assets and return on investment are both half the figures achieved by competitors, at 5% and 6% respectively. This suggests that on its $7.7 billion R&D expense (15% of revenues), Pfizer is earning a trivial 6%.
At 2010 fiscal year-end, which Pfizer occurs on December 31st, the company reported net income of $7,327,513, and shareholders’ equity of $8,275,000, which leads to a quick calculation of 11.45% return on equity (ROE) for the year. Competitors Glaxo Smith Kline and AstraZeneca presented drastically different and superior numbers for ROE. In 2010 GSK’s and AZN. L’s return on equity was 37.26% and 43.71% respectively. A business that has a high return on equity is more likely to be one that is capable of generating cash internally. For the most part, the higher a company's return on equity compared to its industry, the better.
I used The Capital Asset Pricing Model (CAPM) estimate the expected rate of

Related Documents