Pfizer (PFE)

Despite years of this stock going nowhere, things look set to turn from here. This big and stodgy company has several valuable pieces and is finally taking some action after years of deliberation.

Pfizer consists of 3 main pieces: consumer healthcare, generic drugs, and its core pharma business. Everything is going as they just closed on a “sale” of the consumer healthcare business to Glaxo and the generics business is soon to be combined with Mylan’s generics business. This will leave only the core pharma business which has been growing and has a solid pipeline of new drugs.

For the numbers… Pfizer is a $37 stock with 5.5bn shares outstanding = $203.5bn market cap + $34bn in net debt = $237bn enterprise value. All 3 of the businesses above have been doing $15bn+ in cash flow annually. EPS estimates of $2.80 for 2019 put it right near 13x earnings. Most competitors like J&J, Eli Lilly, and Merck trade in the 15-18x P/E neighborhood.

But wait, Pfizer is unloading the pieces of its business weighing it down while hanging onto the crown jewel? That’s right. They’re also keeping some potential upside in those divestitures in consumer and generics. They’ll hang on to a 32% ownership stake in consumer health which is combining with Glaxo’s consumer division to form a $13bn revenue company. The generics business is even more interesting with Pfizer owning >50% of the business to be combined with Mylan. It will also be spun or split off to Pfizer shareholders meaning you’ll get shares in each company just for owning Pfizer.

All that and a reasonable ~4% dividend at today’s prices with 9 consecutive years of dividend growth. Not a bad bet when you consider all the pieces.