Pfizer Inc (NYSE:PFE), one of the world's biggest pharmaceutical companies, may well be licking its wounds after the collapse of its planned merger with Allergan this week, but brokers at Jefferies reiterate a Buy on the stock.
Albeit at a lower price target of $39 - from a previous $42 - the broker is looking for increased visibility on the separation of the Global Established Products (GEP) division of established Pharmaceuticals with revenues of around $22bn, come year end.
"We refocus investor attention toward Sum of the Parts (SOTP) valuation as Pfizer management regroups on strategy. Our SOTP valuation points to around 18% upside potentially being crystallised by 2017 as the decision on the split has been reinstated to
2016," said Jeffrey Holford, equity analyst at Jefferies.
"We highlight some issues on splitting a "non-inverted" Pfizer and see the
potential for major M&A to give more critical mass to (the Primary care business) in particular. "Optionality" takes over as a primary catalyst for Pfizer in 2016," he adds.
The broker remarked that while disappointing, the collapse of the Allergan merger was not unanticipated.
"After updating our model for FX and recent business trends, we see SOTP valuation at around $41.90 per share, with GEP likely being the most undervalued asset within Pfizer."
As a single business Pfizer screens well from a DCF-based valuation perspective, Jefferies noted. However, as a single entity, Jefferies wouldn’t necessarily expect the shares to trade above a sector average rating in the next few years due to the overall slower growth profile.
Pfizer shares were down 0.5% at $32.78 on Thursday.