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No. of Recommendations: 3
> I have run macro type numbers a few different ways and keep coming up
> with "really, really cheap". If the EPS grows at 7.6% (I was assuming
> 5%) I figure it is undervalued by 45% or so. If the stock returns to
> some semblance of normal P/E (14 or so) over the next four years I
> need to see a -4% (yes, negative 4%) to get 17% appreciation per year.


Can you show us your calculations. My calculations don't paint such a
rosy picture.

The income statements for the last 4 quarters show that in the 4th quarter of 2006, PFE boosted its income numbers by 7.96 billion due to "discontinued operations". This number is artificially inflating the EPS to 2.44 - the real EPS if you discount this 7.96 billion boost is actually 1.35. See:

http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=US%3aPFE&stmtView=Qtr

The above artifical boost to EPS is going to roll off the books in
2 quarters.

Now lets say PFE grows by just 7.6% in the next 5 years as per analyst
projections. This means the EPS 5 years from now is going to be:
1.35 * (1 + .076)^5 = 1.94

Lets apply an optimistic P/E of 20 to determine the stock price 5
years from now. So the stock price 5 years from now would be
1.94 * 20 = 38.8. That's a 9% annualized growth from the stock price
today. You'd get a lower growth if you apply a more conservative P/E.



- Mohit
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