Health and Healthcare
Why Merrill Lynch Sees Big Upside in Pfizer (and Even More With Allergan)
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Pfizer Inc. (NYSE: PFE) offers a compelling valuation, an attractive dividend yield and good pipeline optionality. This is in part due to its merger with Allergan PLC (NYSE: AGN), which will also effect a tax inversion.
As a result, one key analyst decided to weigh in on this pharmaceutical giant and where it stands to go from here. Merrill Lynch reiterated a Buy rating with a $39 price target, implying an upside of roughly 35% from the current price level.
Merrill Lynch decided to add Pfizer as its new top pick for 2016. The firm views Pfizer as an attractive stand-alone entity, based on a compelling valuation, low pipeline expectations and significant balance sheet strength ($36 billion in cash and equivalents at the end of the fourth quarter).
Based on Merrill Lynch’s conservative assumptions, the Pfizer-Allergan deal adds roughly $4 per share in net present value and is 17% accretive in 2019. The deal is expected to close in the third quarter of this year. The firm sees high potential for Pfizer to vastly exceed these estimates through large-scale buybacks, facilitated by the strong balance sheet and huge cash flow generation of the pro forma entity.
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