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Investment banker and licensed to practice law.
  • Pfizer's Cash Flow Will Continue To Reward Shareholders 0 comments
    Jan 26, 2014 10:13 AM | about stocks: PFE, JNJ, AZN, BMY, MRK

    During this analysis I will utilize my investment strategy outlined in my first article.

    For purposes of this article, I have analyzed five companies in the pharmaceutical industry with regard to their third quarter 2013 information. Going forward, I would like to conduct this type of analysis on a quarterly basis. The companies I chose are: AstraZeneca (NYSE:AZN), Bristol-Myers Squibb (NYSE:BMY), Johnson & Johnson (NYSE:JNJ), Merck & Co. (NYSE:MRK) and Pfizer (NYSE:PFE). Here is how each of the companies performed:

     

    Weight

    AZN

    Rank

    BMY

    Rank

    JNJ

    Rank

    MRK

    Rank

    PFE

    Rank

    Price (1/18/14)

     

    $63.73

     

    $54.36

     

    $95.06

     

    $51.95

     

    $31.09

     

    Market Cap.

    1%

    79.88B

    1

    85.51B

    2

    268.21B

    5

    150.04B

    3

    201.05B

    4

    CF/Sh to price

    10%

    1.40%

    2

    1.17%

    1

    2.22%

    3

    2.59%

    4

    2.93%

    5

    Shares Outstanding

    1%

    1,250

    1

    1,650

    2

    2,820

    3

    2,930

    4

    6,480

    5

    Dividend %

    5%

    4.39%

    5

    2.65%

    1

    2.78%

    2

    3.39%

    4

    3.35%

    3

    Current Ratio

    4%

    1.28

    2

    1.28

    2

    2.02

    3

    2.07

    4

    2.92

    5

    LTD to Assets

    5%

    15.83

    4

    17.75

    3

    7.68

    5

    21.28

    1

    18.12

    2

    Net Profit Margin

    6%

    19.97

    4

    17.02

    3

    16.97

    2

    10.42

    1

    20.47

    5

    P/CF

    25%

    10.3

    5

    30.4

    1

    16.4

    2

    15.1

    3

    12.8

    4

    Last Q Revenue

     

    6,250

     

    4,065

     

    17,575

     

    11,032

     

    12,643

     

    OCF

     

    1,118

     

    1,053

     

    5,947

     

    3,949

     

    5,908

     

    FCF

     

    644

     

    929

     

    5,138

     

    3,594

     

    5,630

     

    OCF/Sales

    20%

    18%

    1

    26%

    2

    34%

    3

    36%

    4

    47%

    5

    FCF/OCF

    23%

    58%

    1

    88%

    3

    86%

    2

    91%

    4

    95%

    5

     

    100%

     

    2.67

     

    1.94

     

    2.53

     

    3.41

     

    4.49

    Weighted Analysis

    Based on my analysis Pfizer is the strongest pharmaceutical company to add to my portfolio. PFE had the highest ratios of OCF/Sales and FCF/OCF. Also, PFE is very fairly valued considering its cash flow. You can see it has a price to cash flow ratio of 12.8, which is the second lowest among the competition I analyzed. Additionally, the cash flow/shares/price ratio is the highest in the group. It is very clear that PFE is the strongest pharmaceutical stock out of the competition. Such a high amount of free cash flow is a great sign for PFE as they should deliver more value to shareholders in the future. PFE is a great long-term hold as they have clearly demonstrated their ability to generate cash flow. Below is a five-year chart of their CF/OCF.

    MRK is a very close second as it reports strong cash flows and a fair valuation. Additionally, both companies have a current ratio over two, and are paying very fair dividends. Although, JNJ did not rank particularly well, I still consider it a strong stock due to its enormous size, fair valuation and strong cash flows. At the current price, I would stay away from BMY. It is seem expensive when compared to the cash flow it is creating. However, if the price were to come down slightly it would be more competitive with PFE and MRK. The company that worries me the most is AZN. Clearly, they are the laggard company with regard to their cash flows. They place well below the competition in terms of OCF/sale and significantly behind the competition with regard to FCF/OCF.

    I invite you to please provide feedback as I plan to develop my strategy, profile and system in the future. I take find criticism and questions very beneficial.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: PFE, JNJ, AZN, BMY, MRK
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