Pfizer - Financial Analysis
Name: Khiem Nguyen
FINANCIAL ANALYSIS REPORT (Draft 1)
For
PFIZER INC.
Introduction and Shareholder Analysis
Pfizer (NYSE: PFE) is involved in the development, manufacturing and marketing of pharmaceutical products. The industry is intensely competitive. 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 charge monopoly rents 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 the firm’s ability to bring product to market and capitalize on the monopoly rents.
According to MSN Moneycentral, Pfizer’s share price closed on November 19, 2009 at $18.11. Over the past two years, Pfizer shares have generally declined. The stock ended November 2007 at $27.49, meaning that it has fallen 34% over the past two years. In that same span, the S&P 500 has declined around 21%. In order to compare the performance of Pfizer to the performance of the market, these figures need to be adjusted for risk. Pfizer’s beta is 0.76. Therefore, if the market declined 21%, Pfizer should have declined (0.76)(21) = 16%. That Pfizer has dropped 34% indicates that the stock has underperformed dramatically for the past two years. Shareholders are not getting the returns they would have expected from Pfizer stock.
Liquidity and Solvency
Pfizer’s liquidity situation has deteriorated in recent years. In 2005, the company’s current ratio was 1.6:1. This improved to 2.2:1 in 2006 but has since fallen back to 1.6:1. Even though this ratio is below the rule of thumb ratio of 2:1, it’s still higher than its industry competitors such as
FINANCIAL ANALYSIS REPORT (Draft 1)
For
PFIZER INC.
Introduction and Shareholder Analysis
Pfizer (NYSE: PFE) is involved in the development, manufacturing and marketing of pharmaceutical products. The industry is intensely competitive. 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 charge monopoly rents 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 the firm’s ability to bring product to market and capitalize on the monopoly rents.
According to MSN Moneycentral, Pfizer’s share price closed on November 19, 2009 at $18.11. Over the past two years, Pfizer shares have generally declined. The stock ended November 2007 at $27.49, meaning that it has fallen 34% over the past two years. In that same span, the S&P 500 has declined around 21%. In order to compare the performance of Pfizer to the performance of the market, these figures need to be adjusted for risk. Pfizer’s beta is 0.76. Therefore, if the market declined 21%, Pfizer should have declined (0.76)(21) = 16%. That Pfizer has dropped 34% indicates that the stock has underperformed dramatically for the past two years. Shareholders are not getting the returns they would have expected from Pfizer stock.
Liquidity and Solvency
Pfizer’s liquidity situation has deteriorated in recent years. In 2005, the company’s current ratio was 1.6:1. This improved to 2.2:1 in 2006 but has since fallen back to 1.6:1. Even though this ratio is below the rule of thumb ratio of 2:1, it’s still higher than its industry competitors such as