PFIZER--oversold??

 PFIZER $28

Uncertainty breeds opportunity in equities. That is clear, the issue being is the uncertainty so large as to make sensible analysis near impossible and look like a pure speculative bet which it often becomes in these cases.

For PFE I am putting this down as a record of my thoughts so that in future I can conclude what went right or wrong.

There are many issues here, the main ports of call obsolescence and debt need to be looked at. Stock-specific issues abound here as well. One by one.

Debt is high but no higher around $19b than the previous 10 years so it's not great but nothing out of the ordinary.

Obsolescence is an ongoing issue for pharma, they need to reinvent themselves over time and a long period of drug failure would not be well received and potentially company-threatening.

PFE has some $20B (est) coming off patent in a few years. They will lose revenues how much.

C19 revenues are now down to $14b and will probably fall further but most the damage is done.

Seagen acquisition is very large at $43B and currently loss-making until its drug pipeline comes online. (oncology)

PFE has guided for about $60b in revenues for 2023. They also have a large change of amortisation which I would rather add back and adjust the exit multiple.

That’s a lot of moving parts so although PFE is a well-known company with a lot of history there is plenty flex around the outcome here.

Main assumptions current 2022 NAPT $31B

Core non  covid revs grow 4% pa

The patent drugs $20b lose 90% of their revenues.

C19 revenues halve

Non-Seagen revs earn the historic NPAT margin of 22% (important assumption) and may require active margin mgt.

Seagen generates 5% ROE after 5 years.

These assumptions would be an incredibly poor outcome for PFE.

The result is NPAT of about $12.5B, 18% ROE. Assuming PE of 20X, even with a huge impairment /restructuring charges of currently 67% impacting GAAP, we get 10% pa return.

The significant variables here speak to a relatively small position.

 I would add DGE and PYPL a similar. 


Please note the disclaimer.


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