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Pfizer - Performance Valuation
Transcript of Pfizer - Performance Valuation
Thomas Roudaut Summary Fraud
Effects of Capitalizing
Discounted Cash Flow Approach
Optimal capital structure
Dividend policy Fraud Earning evolution compared to CFO Sales evolution compared to the sector Inventories compared to sales Net income/CFO Sales/inventory in percentage Effects of Capitalizing Why capitalizing? Adjusted values with and without capitalization Ratios Discounted Cash Flow Length high growth period 8% market share
Leadership position in patented pharmaceuticals products
Pfizer's return > Merck's one
High competitive advantage 8 YEARS Assumptions Weighted Average Cost of Capital Final computation Risk free rate = 3,52%
Beta coefficient: 0,67
Market risk premium: 6%
Company default spread = 0,95%
Growth rate forever = 2% (economic growth)
Revenues: -11% for 9 Months (Lipitor = 17% sales)
-> -8% annual -> 4% in 2013 and after
Tax rate = 31,5%
Expenses + capital expenditures + changes in working capital = % of the sales
Depreciation = same growth rate as capex Under current GAAP, assets and liabilities are not recognized on the lessee's balance sheet Companies have off-balance sheet financing Accounting rules define an asset as something with future economic benefits, so what about R&D? Ratios will be highly unreliable measures of the underlying economic activity Optimal Capital Structure Dividend Policy Conclusion No existing fraud
Undervalued: $36,96 (12/31/11: $20,88)
Underlevered: Optimal capital structure = 60% (30% end 2011)
Good projects and cash surplus: paying dividends + repurchasing shares Current debt ratio = 22%
Optimal debt ratio = 60% Underlevered Excess cash? 1) 2) Good or bad projects? Analyzing dividend policy 4) 3) ROE > Cost of equity 10,6% > 3,7% 86,3% < 100% Cash/FCFE < 100% Cash surplus Good projects Average debt ratio used is 28,2% (last 5 years) Future dividend policy