Morningstar Report

Morningstar Equity Analyst Report | Report as of 16 Oct 2023 17:28, UTC | Reporting Currency: USD | Trading Currency: USD
| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 20
Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC
Last Price Fair Value Estimate Price/FVE Market Cap Economic MoatTM Equity Style Box Uncertainty Capital Allocation ESG Risk Rating Assessment1
32.11 USD 48.00 USD 0.67 181.29 USD Bil Wide 1 Large Value Medium Standard ;;;;;
13 Oct 2023 6 Jan 2022 15:15, UTC 16 Oct 2023 4 Oct 2023 05:00, UTC
Price vs. Fair Value
Fair Value: 48.00

6 Jan 2022 15:15, UTC
200
Last Close: 32.11
150 Over Valued
Under Valued
100
50
0
2018 2019 2020 2021 2022 YTD
Analysis
0.95 0.85 0.92 1.30 1.07 0.67 Price/Fair Value
24.27 -6.94 1.12 64.66 -10.52 -34.93 Total Return %
Morningstar Rating
Total Return % as of 13 Oct 2023. Last Close as of 13 Oct 2023. Fair Value as of 6 Jan 2022 15:15, UTC.
Contents
Analyst Note (16 Oct 2023) Pfizer: Lowered COVID-19 Product Sales Guidance Largely
Business Description
Business Strategy & Outlook (24 Aug 2023) Offset by Cost Reduction Program
Bulls Say / Bears Say (24 Aug 2023)
Analyst Note Damien Conover, CFA, Sector Director, 16 Oct 2023
Economic Moat (24 Aug 2023)
Fair Value and Profit Drivers (29 Aug 2023)
We are maintaining our $48 fair value estimate for Pfizer following the company’s reduced 2023
Risk and Uncertainty (24 Aug 2023) guidance for COVID-19 product sales and cost-cutting plans. While the updated COVID-19 outlook is
Capital Allocation (24 Aug 2023) lower than our projections, we had already projected COVID-19 product sales below management’s
Analyst Notes Archive previous guidance. In tandem with the lowered COVID-19 outlook, Pfizer announced a cost-reduction
Financials
plan to lower operating expenses by $3.5 billion annually, which helps to mitigate the lower COVID-19
ESG Risk
sales projections. We believe the market was likely already expecting lower COVID-19 sales guidance,
Appendix
Research Methodology for Valuing Companies as we had, but the magnitude of the cost reduction program is a positive surprise. Pfizer’s ability to cut
costs and adapt to demand while supporting strong margins helps to reinforce the company’s wide
Important Disclosure
The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of moat.
Conduct Policy, Personal Security Trading Policy (or an equivalent of), and
Investment Research Policy. For information regarding conflicts of interest, please
visit: http://global.morningstar.com/equitydisclosures. Despite the lowered guidance for Pfizer’s COVID-19 product sales, we still expect the vaccine Comirnaty
The primary analyst covering this company does not own its stock. and treatment Paxlovid to remain two of the company’s largest products over the next several years. For
The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk
1 Comirnaty, we project a long-term run rate of close to $11 billion annually, supported by strong
Rating.
postpandemic pricing and solid utilization by older and immune-compromised people. Comirnaty looks
likely to gain slightly more market share than Moderna in the key developed markets, which would
continue the approximate split between the vaccines during the pandemic period. Paxlovid’s efficacy
remains best-in-class, and the drug should gain most of the nonhospitalized treatment market.
Following the return of heavy drug inventory in the channels from the pandemic period, we expect
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Morningstar Equity Analyst Report | Report as of 16 Oct 2023 17:28, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 2 of 20
Sector Industry
Drug Manufacturers - annual Paxlovid sales to stabilize at close to $4.5 billion by 2024. A key factor for Paxlovid sales is pricing
d Healthcare
General
in the U.S. commercial market, which should be set over the next couple of months. We expect U.S.
Business Description
commercial pricing at close to a 50% increase over pandemic-level prices.
Pfizer is one of the world's largest pharmaceutical firms,
with annual sales close to $50 billion (excluding COVID-
Business Strategy & Outlook Damien Conover, CFA, Sector Director, 24 Aug 2023
19 product sales). While it historically sold many types of
Pfizer's foundation remains solid, based on strong cash flows generated from a basket of diverse drugs.
healthcare products and chemicals, now, prescription
drugs and vaccines account for the majority of sales. Top The company's large size confers significant competitive advantages in developing new drugs. This
sellers include pneumococcal vaccine Prevnar 13, cancer unmatched heft, combined with a broad portfolio of patent-protected drugs, has helped Pfizer build a
drug Ibrance, and cardiovascular treatment Eliquis. Pfizer wide economic moat around its business.
sells these products globally, with international sales
representing close to 50% of its total sales. Within Pfizer's size establishes one of the largest economies of scale in the pharmaceutical industry. In a
international sales, emerging markets are a major business where drug development needs a lot of shots on goal to be successful, Pfizer has the financial
contributor.
resources and the established research power to support the development of more new drugs. Also,
after many years of struggling to bring out important new drugs, Pfizer is now launching several
potential blockbusters in cancer and immunology.
Pfizer's vast financial resources support a leading salesforce. Pfizer's commitment to postapproval
studies provides its salespeople with an armamentarium of data for their marketing campaigns. Further,
Pfizer's leading salesforces in emerging countries position the company to benefit from the dramatically
increasing wealth in nations such as Brazil, India, and China.
Pfizer's 2020 move to divest its off-patent division Upjohn to create a new company (Viatris) in
combination with Mylan should drive accelerating growth at the remaining innovative business at
Pfizer. With limited patent losses and fewer older drugs, Pfizer is poised for steady growth (excluding
COVID-19 product sales) before a round of major patent losses hit in 2028.
Further, we believe Pfizer's operations can withstand the eventual generic competition, and its diverse
portfolio of drugs help insulate the company from any one particular patent loss. Following the merger
with Wyeth several years ago, Pfizer has a much stronger position in the vaccine industry with
pneumococcal vaccine Prevnar. Vaccines tend to be more resistant to generic competition because of
the manufacturing complexity and relatively lower prices.
Bulls Say Damien Conover, CFA, Sector Director, 24 Aug 2023

u Pfizer's pipeline productivity is improving with several successful recent drug launches. In particular,
cardiovascular drug Vyndaqel is a potential game-changer in the rare-disease arena.
u Pfizer's strong success in developing a COVID-19 vaccine and treatment is yielding a massive cash
windfall.
u Pfizer's decision to divest its off-patent division should result in a faster-growing, innovative company.
ß
Competitors
Pfizer Inc PFE Eli Lilly and Co LLY Merck & Co Inc MRK GSK PLC GSK
Fair Value Last Close Fair Value

48.00 Last Close 2,200.00
609.20
Uncertainty : Medium 104.01 Uncertainty : Medium
Fair Value Fair Value
Last Close
368.00 103.00 Last Close
Uncertainty : High Uncertainty : Medium
32.11 1,510.00
Analysis Security 1 Security 2 Security 3 Security 4

Economic Moat Wide Wide Wide Wide
Currency USD USD USD GBX
Fair Value 48.00 6 Jan 2022 15:15, UTC 368.00 24 May 2023 21:04, UTC 103.00 8 Sep 2023 19:16, UTC 2,200.00 19 Sep 2022 11:26, UTC
1-Star Price 64.80 570.40 139.05 2,970.00
5-Star Price 33.60 220.80 72.10 1,540.00
Significantly 16 Oct Significantly Over 15 Oct Fairly Valued 16 Oct 2023 Significantly 16 Oct
Assessment
Undervalued 2023 Valued 2023 Undervalued 2023
Morningstar Rating QQQQQ13 Oct 2023 21:16, UTC Q13 Oct 2023 21:16, UTC QQQ13 Oct 2023 21:16, UTC QQQQQ14 Oct 2023 00:15, UTC
Analyst Damien Conover, Sector Director Damien Conover, Sector Director Damien Conover, Sector Director Damien Conover, Sector Director
Capital Allocation Standard Exemplary Standard Standard
Price/Fair Value 0.67 1.66 1.01 0.69
Price/Sales 2.36 18.66 4.54 2.11
Price/Book 1.83 52.27 6.82 4.87
Price/Earning 8.54 84.85 85.25 11.92
Dividend Yield 5.08% 0.72% 2.81% 3.68%
Market Cap 181.29 Bil 578.31 Bil 263.93 Bil 61.83 Bil
52-Week Range 31.77—54.93 302.14—629.97 91.74—119.65 0.17—16.09
Investment Style Large Value Large Growth Large Value Large Core
Bears Say Damien Conover, CFA, Sector Director, 24 Aug 2023

u Past aggressive cost-cutting in research and development could hurt Pfizer's long-term prospects, given
the importance of continued investment into innovation.
u Merck's pipeline pneumococcal vaccine could take share from Pfizer's Prevnar.
u The likely decline of COVID-19 products could create an earnings drag on the firm in 2023.
Economic Moat Damien Conover, CFA, Sector Director, 24 Aug 2023

Patents, economies of scale, and a powerful distribution network support Pfizer's wide moat. Pfizer's
patent-protected drugs carry strong pricing power that enables the firm to generate returns on invested
capital in excess of its cost of capital. The patents give the company time to develop the next generation
of drugs before generic competition arises. Additionally, while Pfizer holds a diversified product
portfolio, there is some product concentration, with Prevnar representing just over 10% of total sales
(excluding COVID-19 vaccine sales). However, we don't expect typical generic competition for the
vaccine due to complex manufacturing and relatively low prices for the product. Also, Eliquis and
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Ibrance each represent close to 10% of sales as well. However, we expect new products will mitigate
the eventual generic competition of key drugs over the long term. Pfizer's operating structure allows for
cost-cutting following patent losses to reduce the margin pressure from lost high-margin drug sales.
Overall, Pfizer's established product line creates the enormous cash flows needed to fund the average
$800 million in development costs per new drug. The company's powerful distribution network sets up
the company as a strong partner for smaller drug companies that lack Pfizer's resources.
We think the company does face environmental, social, and governance risks, particularly related to
potential U.S. drug price-related policy reform to increase access by lowering drug prices. Ongoing
product governance issues (including litigation related to side effects and patents) also weigh on the
company. While we have factored these threats into our analysis, they are not material to our moat
rating.
Fair Value and Profit Drivers Damien Conover, CFA, Sector Director, 29 Aug 2023
We are maintaining our fair value estimate of $48. For the core business of Pfizer (excluding COVID-19
product sales), we expect close to 6% annual sales growth between 2020 and 2025 as new drugs offset
generic competition. We expect Pfizer's falling COVID-19 vaccine and treatment sales will create a drag
on overall earnings growth in 2023 as demand for Pfizer's vaccine and treatment slows due to the likely
fading of the pandemic. On the bottom line, we project a slightly healthier annual growth rate
(excluding COVID-19 product sales) during the next five years as cost-cutting plans and share buybacks
take shape. We don't model unannounced acquisitions, but acquisitions hold the potential to accelerate
the company's growth rate. Over the long term, we believe the more diversified lineup of drugs should
reduce the volatility of earnings. We anticipate restructuring efforts will help alleviate some margin
pressure, as some high-margin products lose exclusivity. We estimate Pfizer's cost of equity at 7.5% and
weighted average cost of capital at 7%, in line with the peer group.
Risk and Uncertainty Damien Conover, CFA, Sector Director, 24 Aug 2023
Pfizer faces generic competition, potential drug pricing policy changes by governments, an increasingly
stringent FDA, and stronger managed-care and pharmacy benefit manager negotiating power. New-
drug development has become challenging in several disease areas with a more risk-conscious FDA.
Additionally, managed-care companies and pharmacy benefit managers have grown stronger during the
past two decades into powerful entities that can negotiate lower drug prices. However, overall we view
Pfizer's uncertainty as medium partly based on the low volatility of cash flows from a diverse product
portfolio with inelastic demand.
Our uncertainty rating for the company is not materially affected by environmental, social, or
governance risks, although we see access to basic services (tied to potential U.S. policy reform on drug
pricing) as the biggest ESG risk that the firm needs to manage.
ß
We model in policy changes around reforms to Medicare that are reflected in the Inflation Reduction
Act as the firm has exposure to this patient group. For example, Pfizer’s Eliquis (cardiovascular), Ibrance
(cancer), and Xtandi (cancer) generate almost one quarter of the firm’s total sales (excluding COVID-19
sales), and the drugs have significant exposure to the Medicare channel. Additionally, we assume a
more than 50% probability of Pfizer seeing future costs related to product governance ESG risks (such as
off-label marketing or litigation related to side effects), and model base-case annual legal costs at close
to 1% of non-GAAP net income (at the low range relative to peers based on Pfizer’s product portfolio
having less exposure to potential litigation).
Capital Allocation Damien Conover, CFA, Sector Director, 24 Aug 2023

Overall, we rate Pfizer’s capital allocation as Standard. The rating reflects our belief that Pfizer
possesses a sound balance sheet, a reasonable record of investments, and largely fair shareholder
distributions.
We believe Pfizer holds a sound balance sheet with low levels of risk regarding the size of the debt
carried, the business cyclicality facing the firm, and the debt maturity outlook. While an argument could
be made to increase the leverage of the balance sheet to be more active in investing, we believe the
company (along with the majority of firms in the large-cap biopharma industry) should hold ample
balance sheet strength to support opportunistic acquisitions as dynamic scientific data emerges that
might require relatively quick investment action. Also, a strong balance sheet helps biopharma firms
through most product litigation challenges with minimal market concern.
Turning to investments, we believe Pfizer is operating at a reasonable level. The company tends to
spend on R&D at about mid -to high teens as a percentage of sales (a little below the industry average
of high teens). Solid investment in creating the next generation of drugs has yielded a strong pipeline to
offset patent losses. The strong investment in innovative new drugs (largely targeting oncology and
immunology) also helps fortify the firm’s wide moat and expand returns on invested capital.
On the acquisition and divestment side, Pfizer is increasingly making stronger decisions. The decisions
to sell the nutritional and animal healthcare businesses appear to have created value for shareholders
several years ago. Also, we like the strategic decision to form a joint venture with GlaxoSmithKline on
the consumer healthcare front, giving both firms more scale in the marketplace, which was followed by
the divestment of this joint venture. The prices for the acquisitions of Biohaven (2022), Global Blood
Therapeutics (2022), Array (2019), Medivation (2014), Hospira (2015) and Seagen (expected to close in
late 2023 or early 2024) all bordered on the high side but look largely reasonable. The failed attempts to
acquire AstraZeneca and Allergan are partly concerning, but several factors outside Pfizer’s control
helped scuttle those deals.
We view Pfizer’s dividends and share repurchases as about right. Pfizer has generally targeted close to
ß
a 50% payout in dividends as a percentage of normalized earnings, which seems about right for a more
mature industry. Further, Pfizer has shown a strong willingness to buy back shares during generally
favorable periods.
With regard to management, at the beginning of 2019, Albert Bourla became CEO, following several
positions at Pfizer. Before taking the leadership role, Bourla was the chief operating officer and led the
innovative health division. Bourla brings over 25 years of experience at Pfizer with him to the top
position. Bourla's vast experience should help his decision-making. One of the first major decisions
Bourla made was to divest the off-patent business, combining it with Mylan. The remaining innovative
business should be in a stronger position to expand top-line sales. Also, the newly created off-patent
business should have increased scale, which is important in the highly competitive generic business.
Overall, we view this corporate restructuring as a modest positive that will allow both the innovative
and off-patent companies more focus to drive better returns for each segment.
Analyst Notes Archive
Biopharma Industry: Medicare Drug Price Negotiation Impact Reduced by Expected Generic
Pressures Damien Conover, CFA, Sector Director, 29 Aug 2023
As part of the Inflation Reduction Act, the U.S. Department of Health and Human Services on Aug. 29
announced the first 10 drugs selected for mandated 2026 Medicare price negotiations. This doesn’t
have a major impact on our valuations or moat ratings for the biopharma industry. The 10 drugs have
been on the market for a prolonged period (seven years for small-molecule drugs and 11 years for
biologics) and were selected based on the largest gross (before discounts) spending in Medicare Part D.
We had expected three of the 10 drugs selected for 2026 negotiations: Bristol-Myers/Pfizer’s Eliquis,
AbbVie/Johnson & Johnson’s Imbruvica, and Eli Lilly/Boehringer Ingelheim’s Jardiance. We have
already projected a 45% forced negotiated discount for these drugs starting in 2026, although the exact
discount will be determined over the next 12 months. We expect generic pressures for these drugs by
2028-29, which limits the impact of Medicare negotiations.
The majority of the remaining drugs face major patent losses before or very close to 2026, which also
limits the impact of the negotiations. This is particularly true for J&J's Stelara and Novo Nordisk's
insulins Novolog/Fiasp, as we see potential biosimilars by 2026. Amgen’s Enbrel is the only surprise
selection that doesn’t face heavy generic pressures by 2026; its patents expire in 2028. Enbrel's
inclusion is likely a result of the drug's massive discounts, making it qualify on gross sales using a high
list price. This forced price negotiation will likely accelerate declines in 2026, but most Enbrel sales are
outside of Medicare, so this doesn't have a major impact on Amgen’s valuation.
Big winners in this first initial round include AstraZeneca’s Tagrisso and Calquence and Eli Lilly's
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Verzenio, which we had expected to be included in 2026. Another 15 drugs will be negotiated beginning
in 2027, so we expect to see these three on the next list, as well as Novo Nordisk’s semaglutide
(diabetes drugs Ozempic and Rybelsus).
Pfizer Earnings: Mixed Results as COVID-19 Sales Fall, but Base Business Posts Steady Gains
Damien Conover, CFA, Sector Director, 1 Aug 2023
Pfizer reported mixed second-quarter results that fell below our projections, but we don't expect a major
change to the firm's fair value estimate. The lower-than-expected sales from COVID-19 vaccine
Comirnaty and COVID-19 treatment Paxlovid still have the potential to rebound later in the year during
the typically more robust fall respiratory season. Pfizer has contingency plans ready to significantly cut
costs if the COVID-19-related sales don't improve in the third quarter. We project Pfizer COVID-19 sales
above consensus expectations but are below management's implied long-term run rate. We think the
new formulation of Comirnaty will support a more immediate rebasing of pricing close to $70
postpandemic (including rebates) from a close to $20 pandemic price. The price increase should help
buoy Comirnaty sales, but we still expect the vaccine's sales to fall by over 60% in 2023.
Excluding COVID-19 products, total sales grew 5% in the quarter, a rate that should continue over the
next two years before patent pressures begin to accelerate in 2025. Rare-disease drug Vyndaqel grew
43%, with more growth likely through expanding market share. Emerging competition could potentially
displace Vyndaqel, but we believe the drug's high efficacy bar and entrenched position will create
significant hurdles for new competition. Its largest drug, Eliquis (for cardiovascular disease), posted a
slight gain of 2%, but we expect a slight increase in growth as the market potential is still significant
outside the United States.
On the pipeline front, Pfizer is making progress, helping to fortify its wide moat. The breast cancer drug
CDK4i holds potential to be a multi-billion-dollar opportunity. The drug is about to start phase 3
development and holds potential to replace Pfizer's Ibrance, which generated over $5 billion in sales in
2022. Also, we believe diabetes and weight loss drug danuglipron represents a major opportunity but is
risky given the strong competitive environment.
Novo Nordisk and Eli Lilly Lead Potential $60 Billion Obesity Drug Market; Valuations Look Rich
Karen Andersen, CFA, Sector Strategist, 25 May 2023
The approval of Novo Nordisk's GLP-1 agonist Wegovy in 2021 has led to a demand surge for the active
ingredient semaglutide in various forms, including diabetes drug Ozempic. Eli Lilly's approved diabetes
drug Mounjaro is poised to generate even stronger weight loss and to launch in obesity around the end
of 2023. We think Novo and Lilly will continue to lead the obesity market over the next 10 years, with
incremental innovation in this rapidly expanding market that will support their wide moats. We assume
Novo Nordisk's Wegovy, higher-dose oral and injectable semaglutide, and novel GLP-1/amylin
ß
cagrisema will support more than 35% share in 2032. Eli Lilly is likely to remain Novo's chief competitor,
driven by potential launches of Mounjaro in obesity as well as an oral GLP-1 and a novel triple agonist in
2025, resulting in a 40% share by 2032. We think Amgen, Pfizer, and other biopharma firms could begin
to launch their own GLP-1-based obesity drugs as early as 2025, with these new players growing to
roughly one quarter of the market by 2032.
We think the average global price for GLP-1 therapy in obesity is poised to rise to roughly $5,400 as
Wegovy and Mounjaro launch and then gradually decline beginning in 2025 as additional therapies
launch, falling to roughly $2,800 by 2032. Furthermore, we expect 21 million individuals globally could
be taking GLP-1-based therapy for obesity by 2032, creating potential for a $60 billion market. We think
there is high uncertainty around the potential size of this market, with likely potential sales in the range
of $37 billion-$86 billion annually. While demand is soaring today, our valuations incorporate potential
risks. Beyond pricing pressure from new brands (2025) and generic semaglutide (2032), potential risks
include payer restrictions on coverage, patients falling off of chronic therapy, weaker demand among
nondiabetic obese patients, or any long-term safety risks that could emerge as more patients receive
treatment.
Pfizer: Solid Midstage Danuglipron Data in Diabetes and Weight Loss Supports Continued
Development Damien Conover, CFA, Sector Director, 23 May 2023
Pfizer published solid and detailed phase 2 data on diabetes and weight loss drug danuglipron largely in
line with our expectations. We don’t expect any major changes to our fair value estimate or moat rating
based on the data. If a larger phase 3 program continues to support a robust efficacy impact, we would
likely increase Pfizer’s fair value estimate. Nevertheless, the data is a reminder that Pfizer has the
potential to launch competitive drugs into a class that is currently dominated by Novo Nordisk and Eli
Lilly. We believe Pfizer’s potential in this class is likely underappreciated and could be disruptive if it
posts strong phase 3 data.
With a market potential likely well over $50 billion, the diabetes and weight loss drug market is
attracting increased competition. We expect Pfizer will be the next major drug company to enter the
market in a significant way. The high-dose danuglipron data suggests the weight loss potential is
almost as good as Wegovy in diabetic patients. Also, the convenience of oral danuglipron could support
significant market share gains, especially since the drug doesn't have the same fasting restrictions that
are part of Novo Nordisk’s Rybelsus (oral semaglutide) administration. Following Pfizer’s phase 2 data
from another similar mechanism of action drug lotiglipron (PF-07081532) expected over the next nine
months, Pfizer plans to take lotiglipron or danuglipron into extensive phase 3 development. We expect
Pfizer will likely enter this market by 2026. Pfizer’s investment in optionality around two drugs shows the
potential importance of this drug class.
Pfizer Earnings: Better-Than-Expected COVID-19 Sales Buoy Results, but Long-Term Outlook
ß
Unchanged Damien Conover, CFA, Sector Director, 2 May 2023

Pfizer reported first-quarter results ahead of our projections, largely driven by higher-than-expected
COVID-19 product sales. While sales of COVID vaccine Comirnaty fell to $3.1 billion, this was above our
$2.2 billion estimate, and COVID treatment Paxlovid generated $4.1 billion, well ahead of our $1.6 billion
estimate. We had expected a greater work-down in the high levels of inventory for both products. We
are not making any major changes to our fair value estimate, as our projected 2023 COVID product sales
are still tracking to a 50%-plus decline as the pandemic eases, followed by expected stable demand for
several years. However, management appears to be guiding to much higher Comirnaty and Paxlovid
sales in 2024 and beyond. While we view the stock as already undervalued, if management achieves its
longer-term COVID sales projection, further upside to our valuation is likely.
Excluding COVID product sales, total sales increased 5% operationally, a trend we expect will continue
through 2025. Steady gains for cardiovascular Eliquis (up 7%) and rare-disease drug Vyndaqel (up 16%)
should continue based on leading efficacy, but patent losses beginning in 2026 and emerging
competition for Vyndaqel are likely to cause declines longer-term. Also, we expect further declines for
cancer drug Ibrance (down 5%) based on growing traction from competitive drugs that have shown a
stronger survival benefit.
Despite the pressures on Pfizer’s long-term growth, we are encouraged by continued development in
the pipeline, which reinforces the firm’s wide moat. We remain most bullish on several near-term
launches, including the respiratory syncytial virus vaccine and immunology drugs ritlecitinib and
etrasimod. In the intermediate pipeline, midstage data for GLP-1 drugs danuglipron and lotiglipron
expected later this year could set the stage for phase 3 studies targeting major competitor blockbusters
with an oral convenience benefit.
Pfizer's Seagen Deal Should Help Offset Upcoming Patent Losses; No Fair Value Estimate Impact
Damien Conover, CFA, Sector Director, 13 Mar 2023
Pfizer’s announced acquisition of Seagen doesn’t have a major impact on our fair value estimate or wide
moat rating for the pharma giant. We continue to view Pfizer as undervalued, with the market not fully
appreciating the firm’s ability to offset major patent losses over the next five years. While we don’t see
the Seagen deal as creating value, we believe it will help the market get more comfortable with Pfizer
working through major patent losses on several drugs, including cardiovascular drug Eliquis, oncology
drug Ibrance, and rare-disease drug Vyndaqel between 2027 and 2028. We don’t see any major
antitrust issues and expect the deal to close in late 2023 or early 2024, in line with management
guidance.
Pfizer is paying close to $43 billion for Seagen, which is higher than our valuation for the latter
company. However, we expect cost synergies (close to $1 billion highlighted by management) to help
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offset this overpayment. Further, if Seagen’s pipeline of early-and mid-stage drugs develops better than
our expectations, we believe there could be upside for Pfizer.
We believe the Seagen acquisition is likely to bring in close to $8 billion of revenue by 2030. While Pfizer
expects over $10 billion in Seagen-related sales by 2030, we are skeptical of that estimate and would
need to see strong pipeline data before increasing our estimates to Pfizer’s guidance. Nevertheless, we
see strong growth potential for Seagen’s already approved cancer drugs, including Adcetris, Padcev,
and Tukysa. These drugs drive the majority of the $6 billion in expected incremental annual sales over
the next seven years. Also, Seagen pipeline drug SGN-B6A (lung cancer) looks intriguing. While the
drug is in early-stage development, we expect quick movement into late-stage development, especially
with Pfizer’s deep pockets to support rapid development. If this drug and other pipeline assets succeed,
we believe the deal has the potential to create value and expand Pfizer’s moat. K
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Competitors Price vs. Fair Value
Eli Lilly and Co LLY
Last Close: 609.20

800 Fair Value: 368.00
24 May 2023 21:04, UTC
600 Over Valued

Under Valued
400
200
0
Analytics
2018 2019 2020 2021 2022 YTD
1.11 1.09 1.00 1.18 1.34 1.66 Price/Fair Value
39.68 15.81 30.72 65.61 33.86 67.45 Total Return %
Morningstar Rating
Total Return % as of 13 Oct 2023. Last Close as of 13 Oct 2023. Fair Value as of 24 May 2023 21:04, UTC.
Merck & Co Inc MRK
Last Close: 104.01

200 Fair Value: 103.00
8 Sep 2023 19:16, UTC
150 Over Valued

Under Valued
100
50
0
2018 2019 2020 2021 2022 YTD Analytics
1.09 0.88 0.82 0.82 1.14 1.01 Price/Fair Value

39.33 21.99 -7.33 -0.68 48.42 -4.28 Total Return %
Morningstar Rating
Total Return % as of 13 Oct 2023. Last Close as of 13 Oct 2023. Fair Value as of 8 Sep 2023 19:16, UTC.
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GSK PLC GSK
Fair Value: 2,200.00

19 Sep 2022 11:26, UTC
2000
Last Close: 1,510.00
1500 Over Valued
Under Valued
1000
500
0
2018 2019 2020 2021 2022 YTD Analytics
0.83 0.99 0.75 0.93 0.65 0.69 Price/Fair Value

18.81 24.66 -20.07 25.68 -4.12 7.94 Total Return %
Morningstar Rating
Total Return % as of 13 Oct 2023. Last Close as of 13 Oct 2023. Fair Value as of 19 Sep 2022 11:26, UTC.
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Morningstar Historical Summary

Financials as of 30 Jun 2023
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
Revenue (USD Bil) 52 50 49 53 53 41 41 42 81 100 31 78
Revenue Growth % -5.6 -3.8 -1.5 8.1 -0.5 -22.3 0.2 1.8 95.2 23.4 -41.9 -23.0
EBITDA (USD Bil) 24 19 15 15 20 11 19 13 31 41 12 30
EBITDA Margin % 45.6 38.6 31.4 29.0 37.8 27.1 45.6 31.8 37.9 40.9 40.1 38.5
Operating Income (USD Bil) 16.37 13.50 12.98 13.71 14.07 6.73 7.31 8.83 23.70 37.27 8.54 23.46
Operating Margin % 31.7 27.2 26.6 26.0 26.8 16.5 17.9 21.2 29.2 37.2 27.5 30.1
Net Income (USD Bil) 22.00 9.14 6.96 7.22 21.31 11.15 16.03 9.16 21.98 31.37 7.87 21.47
Net Margin % 42.7 18.4 14.2 13.7 40.6 27.3 39.2 22.0 27.0 31.3 25.4 27.6
Diluted Shares Outstanding (Mil) 6,895 6,424 6,257 6,159 6,058 5,977 5,675 5,632 5,708 5,733 5,720 5,726
Diluted Earnings Per Share (USD) 3.19 1.42 1.11 1.17 3.52 1.87 2.82 1.63 3.85 5.47 1.38 3.75
Dividends Per Share (USD) 0.96 1.04 1.12 1.20 1.28 1.36 1.44 1.52 1.56 1.60 0.82 1.62
Valuation as of 29 Sep 2023

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Price/Sales 3.9 4.0 4.2 3.8 4.2 4.9 4.2 4.3 4.8 2.9 2.4 2.4
Price/Earnings 20.3 19.2 24.3 32.5 22.4 11.0 13.7 23.8 17.2 9.8 8.8 8.8
Price/Cash Flow 12.6 11.6 13.4 13.7 14.2 14.7 16.6 16.5 10.4 11.0 13.0 13.0
Dividend Yield % 3.13 3.34 3.47 3.69 3.53 3.12 3.68 4.13 2.64 3.12 4.91 4.91
Price/Book 2.5 2.5 3.0 3.1 3.6 3.5 3.3 3.1 4.4 3.1 1.9 1.9
EV/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating Performance / Profitability as of 30 Jun 2023 Years Years Years Years Years Years Years Years Years Years Years
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
ROA % 12.3 5.4 4.2 4.3 12.4 6.7 9.8 5.7 13.1 16.6 3.8 10.3
ROE % 27.9 12.4 10.2 11.6 32.6 16.6 25.3 14.5 31.3 36.3 8.1 23.1
ROIC % 19.7 8.9 7.1 7.7 20.4 10.8 15.8 9.7 21.5 26.4 5.6 15.3
Asset Turnover 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.5 0.5 0.1 0.4
Financial Leverage
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Debt/Capital % 28.5 30.7 30.8 33.8 31.4 34.2 35.4 36.0 31.0 25.0 38.3 —
Equity/Assets % 44.3 42.5 38.7 34.7 41.5 39.8 37.7 41.0 42.5 48.5 45.0 —
Total Debt/EBITDA 1.6 1.9 2.5 2.7 2.1 3.8 2.7 2.9 1.2 0.8 5.3 —
EBITDA/Interest Expense 16.6 14.1 12.8 12.9 15.6 8.4 11.9 9.2 23.8 33.1 15.0 20.7
Morningstar Analyst Historical/Forecast Summary as of

Financials Estimates Forward Valuation Estimates
2021 2022 2023 2024 2025
Fiscal Year, ends 31 Dec 2022 2021 2022 2023 2024 2025
Price/Sales 4.1 2.9 2.8 2.5 2.4
Revenue (USD Mil) 81,288 100,330 65,883 73,202 76,007 Price/Earnings 14.4 7.9 9.8 8.6 8.2
Revenue Growth % 95.2 23.4 -34.3 11.1 3.8 Price/Cash Flow — — — — —
EBITDA (USD Mil) 30,756 40,780 — 29,246 30,473 Dividend Yield % 2.7 3.1 5.3 5.5 5.8
EBITDA Margin % 37.8 40.7 — 40.0 40.1 Price/Book 4.4 3.1 1.8 1.7 1.6
EV/EBITDA 11.1 7.0 8.1 6.9 6.6
Operating Income (USD Mil) 23,704 37,272 17,196 20,451 21,963
Operating Margin % 29.2 37.2 26.1 27.9 28.9
Net Income (USD Mil) 23,328 37,170 18,828 20,946 21,741
Net Margin % 28.7 37.1 28.6 28.6 28.6
Diluted Shares Outstanding 5,708 5,733 5,735 — —
Diluted Earnings Per Share(USD) 4.09 6.48 — 3.72 3.93
Dividends Per Share(USD) 1.57 1.61 1.69 1.78 1.86
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ESG Risk Rating Breakdown
Values
Exposure Subject Subindustry (47.0) u Exposure represents a company’s vulnerability to ESG
Company Exposure 1
45.6 risks driven by their business model
45.6
u Exposure is assessed at the Subindustry level and then
– Manageable Risk 42.5 Medium
2 0 55+ specified at the company level
Unmanageable Risk 3.1 u Scoring ranges from 0-55+ with categories of low, me-
Low Medium High
dium, and high-risk exposure
Management Values u Management measures a company ’s ability to manage

Manageable Risk 42.5 ESG risks through its commitments and actions
63.7%
– Managed Risk3 27.1 Strong
u Management assesses a company's efficiency on ESG
Management Gap4 15.4 100 0 programs, practices, and policies

Strong Average Weak u Management score ranges from 0-100% showing how
Overall Unmanaged Risk 18.5 much manageable risk a company is managing
ESG Risk Rating ESG Risk Rating Assessment5

18.49
Low
Negligible Low Medium High Severe ESG Risk Rating is of Oct 04, 2023. Highest Controversy Level is as of Oct 08,
2023. Sustainalytics Subindustry: Pharmaceuticals. Sustainalytics provides
ESG Risk Ratings measure the degree to which a company’s value is impacted by environmental, social, and governance Morningstar with company ESG ratings and metrics on a monthly basis and
risks, by evaluating the company’s ability to manage the ESG risks it faces. as such, the ratings in Morningstar may not necessarily reflect current
Sustainalytics’ scores for the company. For the most up to date rating and
1. A company's Exposure to material ESG issues 2. Unmanageable Risk refers to risks that are inherent to a particular business model that cannot be managed by more information, please visit: sustainalytics.com/esg-ratings/.
programs or initiatives 3. Managed Risk = Manageable Risk multiplied by a Management score of 63.7% 4. Management Gap assesses risks that are not
managed, but are considered manageable 5. ESG Risk Rating Assessment = Overall Unmanaged Risk = Management Gap plus Unmanageable Risk
Peer Analysis 04 Oct 2023 Peers are selected from the company's Sustainalytics-defined Subindustry and are displayed based on the closest market cap values
Company Name Exposure Management ESG Risk Rating
Pfizer Inc 45.6 | Medium 0 55+ 63.7 | Strong 100 0 18.5 | Low 0 40+
Bristol-Myers Squibb Co 40.4 | Medium 0 55+ 45.5 | Average 100 0 22.7 | Medium 0 40+
Eli Lilly and Co 48.3 | Medium 0 55+ 53.4 | Strong 100 0 24.2 | Medium 0 40+
GSK PLC 44.8 | Medium 0 55+ 67.1 | Strong 100 0 16.7 | Low 0 40+
Merck & Co Inc 48.5 | Medium 0 55+ 60.1 | Strong 100 0 21.4 | Medium 0 40+
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Appendix
Historical Morningstar Rating
Pfizer Inc PFE 13 Oct 2023 21:16, UTC
December November October September August July May May April March February January
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
- - QQQQQ QQQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ
QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQ QQQ QQ
Q QQ QQQ QQ QQ QQQ QQQ QQQ QQQ QQQQ QQQQ QQQQ
QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQQ QQQQ QQQQ QQQQQ QQQQQ QQQQ
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Eli Lilly and Co LLY 13 Oct 2023 21:16, UTC

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Merck & Co Inc MRK 13 Oct 2023 21:16, UTC

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GSK PLC GSK 14 Oct 2023 00:15, UTC

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QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ
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QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ QQQ QQQQ QQQ QQQ
QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ
QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ
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Research Methodology for Valuing Companies
Overview turns on invested capital (or ROIC) over and above our es- rive our annual free cash flow forecast.
At the heart of our valuation system is a detailed projec- timate of a firm’s cost of capital, or weighted average
Stage II: Fade
tion of a company’s future cash flows, resulting from our cost of capital (or WACC). Without a moat, profits are
The second stage of our model is the period it will take
analysts’ research. Analysts create custom industry and more susceptible to competition. We have identified five
the company ’s return on new invested capital—the re-
company assumptions to feed income statement, balance sources of economic moats: intangible assets, switching
turn on capital of the next dollar invested (“RONIC”)—to
sheet, and capital investment assumptions into our glob- costs, network effect, cost advantage, and efficient scale.
decline (or rise) to its cost of capital. During the Stage II
ally standardized, proprietary discounted cash flow, or
Companies with a narrow moat are those we believe are period, we use a formula to approximate cash flows in
DCF, modeling templates. We use scenario analysis, inde-
more likely than not to achieve normalized excess returns lieu of explicitly modeling the income statement, balance
pth competitive advantage analysis, and a variety of other
for at least the next 10 years. Wide-moat companies are sheet, and cash flow statement as we do in Stage I. The
analytical tools to augment this process. Moreover, we
those in which we have very high confidence that excess length of the second stage depends on the strength of
think analyzing valuation through discounted cash flows
returns will remain for 10 years, with excess returns more the company’s economic moat. We forecast this period to
presents a better lens for viewing cyclical companies,
likely than not to remain for at least 20 years. The longer last anywhere from one year (for companies with no eco-
high-growth firms, businesses with finite lives (e.g.,
a firm generates economic profits, the higher its intrinsic nomic moat) to 10–15 years or more (for wide-moat com-
mines), or companies expected to generate negative
value. We believe low-quality, no-moat companies will panies). During this period, cash flows are forecast using
earnings over the next few years. That said, we don’t dis-
see their normalized returns gravitate toward the firm’s four assumptions: an average growth rate for EBI over the
miss multiples altogether but rather use them as support-
cost of capital more quickly than companies with moats. period, a normalized investment rate, average return on
ing cross-checks for our DCF-based fair value estimates.
new invested capital (RONIC), and the number of years
We also acknowledge that DCF models offer their own
When considering a company's moat, we also assess until perpetuity, when excess returns cease. The invest-
challenges (including a potential proliferation of estim-
whether there is a substantial threat of value destruction, ment rate and return on new invested capital decline un-
ated inputs and the possibility that the method may miss
stemming from risks related to ESG, industry disruption, til a perpetuity value is calculated. In the case of firms
shortterm market-price movements), but we believe these
financial health, or other idiosyncratic issues. In this con- that do not earn their cost of capital, we assume marginal
negatives are mitigated by deep analysis and our
text, a risk is considered potentially value destructive if its ROICs rise to the firm’s cost of capital (usually attribut-
longterm approach.
occurrence would eliminate a firm’s economic profit on a able to less reinvestment), and we may truncate the
cumulative or midcycle basis. If we deem the probability second stage.
Morningstar’s equity research group (”we,” “our”) be-
lieves that a company’s intrinsic worth results from the of occurrence sufficiently high, we would not characterize
the company as possessing an economic moat. Stage III: Perpetuity
future cash flows it can generate. The Morningstar Rating
Once a company’s marginal ROIC hits its cost of capital,
for stocks identifies stocks trading at a discount or premi-
2. Estimated Fair Value we calculate a continuing value, using a standard per-
um to their intrinsic worth—or fair value estimate, in
Combining our analysts’ financial forecasts with the petuity formula. At perpetuity, we assume that any
Morningstar terminology. Five-star stocks sell for the
firm’s economic moat helps us assess how long returns growth or decline or investment in the business neither
biggest risk adjusted discount to their fair values, where-
on invested capital are likely to exceed the firm’s cost of creates nor destroys value and that any new investment
as 1-star stocks trade at premiums to their intrinsic worth.
capital. Returns of firms with a wide economic moat rat- provides a return in line with estimated WACC.
Four key components drive the Morningstar rating: (1) our ing are assumed to fade to the perpetuity period over a
longer period of time than the returns of narrow-moat Because a dollar earned today is worth more than a dollar
assessment of the firm’s economic moat, (2) our estimate
firms, and both will fade slower than no-moat firms, in- earned tomorrow, we discount our projections of cash
of the stock’s fair value, (3) our uncertainty around that
creasing our estimate of their intrinsic value. flows in stages I, II, and III to arrive at a total present
fair value estimate and (4) the current market price. This
value of expected future cash flows. Because we are
process ultimately culminates in our singlepoint star rat-
Our model is divided into three distinct stages: modeling free cash flow to the firm—representing cash
ing.
available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
1. Economic Moat Stage I: Explicit Forecast
weighted average of the costs of equity, debt, and pre-
The concept of an economic moat plays a vital role not In this stage, which can last five to 10 years, analysts
ferred stock (and any other funding sources), using ex-
only in our qualitative assessment of a firm’s long-term make full financial statement forecasts, including items
pected future proportionate long-term, market-value
investment potential, but also in the actual calculation of such as revenue, profit margins, tax rates, changes in
weights.
our fair value estimates. An economic moat is a structural workingcapital accounts, and capital spending. Based on
feature that allows a firm to sustain excess profits over a these projections, we calculate earnings before interest,
3. Uncertainty Around That Fair Value Estimate
long period of time. We define economic profits as re- after taxes (EBI) and the net new investment (NNI) to de-
Morningstar’s Uncertainty Rating is designed to capture
the range of potential outcomes for a company ’s intrinsic
Morningstar Equity Research Star Rating Methodology
value. This rating is used to assign the margin of safety
required before investing, which in turn explicitly drives
our stock star rating system. The Uncertainty Rating is
aimed at identifying the confidence we should have in as-
signing a fair value estimate for a given stock.
Our Uncertainty Rating is meant to take into account any-

thing that can increase the potential dispersion of future
outcomes for the intrinsic value of a company, and any-
ß
thing that can affect our ability to accurately predict Morningstar Equity Research Star Rating Methodology
these outcomes. The rating begins with a suggested rat-
ing produced by a quantitative process based on the trail-
ing 12-month standard deviation of daily stock returns.
An analyst overlay is then applied, with analysts using
the suggested rating, historical rating data, and their own
knowledge of the company to inform them as they make
the final Uncertainty Rating decision. Ultimately, the rat-
ing decision rests with the analyst. Analysts take into ac-
count many characteristics when making their final de-
cision, including cyclical factors, operational and financial
factors such as leverage, company-specific events, ESG
risks, and anything else that might increase the potential
dispersion of future outcomes and our ability to estimate
those outcomes.
Our recommended margin of safety—the discount to fair

value demanded before we’d recommend buying or
selling the stock—widens as our uncertainty of the es-
timated value of the equity increases. The more uncertain
we are about the potential dispersion of outcomes, the
greater the discount we require relative to our estimate of
the value of the firm before we would recommend the
purchase of the shares. In addition, the Uncertainty Rat-
ing provides guidance in portfolio construction based on
risk tolerance. Once we determine the fair value estimate of a stock, we justed return is highly likely over a multiyear time frame.
compare it with the stock’s current market price on a Scenario analysis developed by our analysts indicates
Our Uncertainty Ratings are: Low, Medium, High, Very daily basis, and the star rating is automatically re-calcu- that the current market price represents an excessively
High, and Extreme. lated at the market close on every day the market on pessimistic outlook, limiting downside risk and maximiz-
which the stock is listed is open. Our analysts keep close ing upside potential.
Margin of Safety
tabs on the companies they follow, and, based on thor-
Qualitative Analysis
QRating ough and ongoing analysis, raise or lower their fair value QQQQ We believe appreciation beyond a fair risk-ad-
Uncertainty Ratings QQQQQRating
estimates as warranted. justed return is likely.
Low 20% Discount 25% Premium
Medium 30% Discount 35% Premium QQQ Indicates our belief that investors are likely to re-
Please note, there is no predefined distribution of stars.
High 40% Discount 55% Premium ceive a fair risk-adjusted return (approximately cost of
That is, the percentage of stocks that earn 5 stars can
Very High 50% Discount 75% Premium equity).
fluctuate daily, so the star ratings, in the aggregate, can
Extreme 75% Discount 300% Premium serve as a gauge of the broader market’s valuation. When
there are many 5-star stocks, the stock market as a whole QQ We believe investors are likely to receive a less than
Our uncertainty rating is based on the interquartile range, fair risk-adjusted return.
is more undervalued, in our opinion, than when very few
or the middle 50% of potential outcomes, covering the
companies garner our highest rating.
25th percentile–75th percentile. This means that when a Q Indicates a high probability of undesirable risk-adjus-
stock hits 5 stars, we expect there is a 75% chance that ted returns from the current market price over a multiyear
We expect that if our base-case assumptions are true the
the intrinsic value of that stock lies above the current time frame, based on our analysis. Scenario analysis by
market price will converge on our fair value estimate over
market price. Similarly, when a stock hits 1 star, we ex- our analysts indicates that the market is pricing in an ex-
time generally within three years (although it is im-
pect there is a 75% chance that the intrinsic value of that cessively optimistic outlook, limiting upside potential and
possible to predict the exact time frame in which market
stock lies below the current market price. leaving the investor exposed to Capital loss.
prices may adjust).
4. Market Price Our star ratings are guideposts to a broad audience and Other Definitions
The market prices used in this analysis and noted in the individuals must consider their own specific investment Last Price: Price of the stock as of the close of the mar-
report come from exchange on which the stock is listed goals, risk tolerance, tax situation, time horizon, income ket of the last trading day before date of the report.
which we believe is a reliable source. needs, and complete investment portfolio, among other
factors. Capital Allocation Rating: Our Capital Allocation (or
For more details about our methodology, please go to Stewardship) Rating represents our assessment of the
https://shareholders.morningstar.com The Morningstar Star Ratings for stocks are defined be- quality of management’s capital allocation, with particu-
low: lar emphasis on the firm ’s balance sheet, investments,
Morningstar Star Rating for Stocks QQQQQ We believe appreciation beyond a fair risk ad- and shareholder distributions. Analysts consider compan-
ß
ies’ investment strategy and valuation, balance sheet starting at zero (no risk) with lower scores representing mendations made herein may not be suitable for all in-
management, and dividend and share buyback policies. less unmanaged risk and, for 95% of cases, the unman- vestors: recipients must exercise their own independent
Corporate governance factors are only considered if they aged ESG Risk score is below 50. judgment as to the suitability of such investments and re-
are likely to materially impact shareholder value, though commendations in the light of their own investment ob-
either the balance sheet, investment, or shareholder dis- Based on their quantitative scores, companies are jectives, experience, taxation status and financial posi-
tributions. Analysts assign one of three ratings: "Exem- grouped into one of five Risk Categories (negligible, low, tion.
plary", "Standard", or "Poor". Analysts judge Capital Alloc- medium, high, severe). These risk categories are absolute,
ation from an equity holder’s perspective. Ratings are de- meaning that a ‘high risk’ assessment reflects a compar- The information, data, analyses and opinions presented
termined on a forward looking and absolute basis. The able degree of unmanaged ESG risk across all subindus- herein are not warranted to be accurate, correct, com-
Standard rating is most common as most managers will tries covered. plete or timely. Unless otherwise provided in a separate
exhibit neither exceptionally strong nor poor capital alloc- agreement, neither Morningstar, Inc. or the Equity Re-
ation. The ESG Risk Rating Assessment is a visual representa- search Group represents that the report contents meet all
tion of Sustainalytics ESG Risk Categories on a 1 to 5 of the presentation and/or disclosure standards applic-
Capital Allocation (or Stewardship) analysis published pri- scale. Companies with Negligible Risk = 5 Globes, Low able in the jurisdiction the recipient is located.
or to Dec. 9, 2020, was determined using a different pro- Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes,
cess. Beyond investment strategy, financial leverage, and Severe Risk = 1 Globe. For more information, please visit Except as otherwise required by law or provided for in a
dividend and share buyback policies, analysts also con- sustainalytics.com/esg-ratings/ separate agreement, the analyst, Morningstar, Inc. and
sidered execution, compensation, related party transac- the Equity Research Group and their officers, directors
tions, and accounting practices in the rating. Ratings should not be used as the sole basis in evaluating and employees shall not be responsible or liable for any
a company or security. Ratings involve unknown risks and trading decisions, damages or other losses resulting from,
Capital Allocation Rating: Our Capital Allocation (or uncertainties which may cause our expectations not to or related to, the information, data, analyses or opinions
Stewardship) Rating represents our assessment of the occur or to differ significantly from what was expected within the report. The Equity Research Group encourages
quality of management’s capital allocation, with particu- and should not be considered an offer or solicitation to recipients recipients of this report to read all relevant is-
lar emphasis on the firm’s balance sheet, investments, buy or sell a security. sue documents (e.g., prospectus) pertaining to the secur-
and shareholder distributions. Analysts consider compan- ity concerned, including without limitation, information
ies’ investment strategy and valuation, balance sheet Risk Warning relevant to its investment objectives, risks, and costs be-
management, and dividend and share buyback policies. Please note that investments in securities are subject to fore making an in vestment decision and when deemed
Corporate governance factors are only considered if they market and other risks and there is no assurance or guar- necessary, to seek the advice of a legal, tax, and/or ac-
are likely to materially impact shareholder value, though antee that the intended investment objectives will be counting professional.
either the balance sheet, investment, or shareholder dis- achieved. Past performance of a security may or may not
tributions. Analysts assign one of three ratings: "Exem- be sustained in future and is no indication of future per- The Report and its contents are not directed to, or inten-
plary", "Standard", or "Poor". Analysts judge Capital Alloc- formance. A security investment return and an investor ’s ded for distribution to or use by, any person or entity who
ation from an equity holder’s perspective. Ratings are de- principal value will fluctuate so that, when redeemed, an is a citizen or resident of or located in any locality, state,
termined on a forward looking and absolute basis. The investor ’s shares may be worth more or less than their country or other jurisdiction where such distribution, pub-
Standard rating is most common as most managers will original cost. A security’s current investment performance lication, availability or use would be contrary to law or
exhibit neither exceptionally strong nor poor capital alloc- may be lower or higher than the investment performance regulation or which would subject Morningstar, Inc. or its
ation. noted within the report. Morningstar’s Uncertainty Rating affiliates to any registration or licensing requirements in
serves as a useful data point with respect to sensitivity such jurisdiction.
Capital Allocation (or Stewardship) analysis published pri- analysis of the assumptions used in our determining a fair
or to Dec. 9, 2020, was determined using a different pro- value price. Where this report is made available in a language other
cess. Beyond investment strategy, financial leverage, and than English and in the case of inconsistencies between
dividend and share buyback policies, analysts also con- the English and translated versions of the report, the Eng-
sidered execution, compensation, related party transac- General Disclosure lish version will control and supersede any ambiguities
tions, and accounting practices in the rating. associated with any part or section of a report that has
Unless otherwise provided in a separate agreement, re-
cipients accessing this report may only use it in the coun- been issued in a foreign language. Neither the analyst,
Sustainalytics ESG Risk Rating Assessment:The ESG Morningstar, Inc., or the Equity Research Group guaran-
try in which the Morningstar distributor is based. Unless
Risk Rating Assessment is provided by Sustainalytics; a tees the accuracy of the translations.
stated otherwise, the original distributor of the report is
Morningstar company.
Morningstar Research Services LLC, a U.S.A. domiciled
financial institution. This report may be distributed in certain localities, coun-
Sustainalytics’ ESG Risk Ratings measure the degree to tries and/or jurisdictions (“Territories ”) by independent
which company’s economic value at risk is driven by en- third parties or independent intermediaries and/or distrib-
This report is for informational purposes only and has no
vironment, social and governance (ESG) factors. utors (“Distributors”). Such Distributors are not acting as
regard to the specific investment objectives, financial
situation or particular needs of any specific recipient. This agents or representatives of the analyst, Morningstar,
Sustainalytics analyzes over 1,300 data points to assess a Inc. or the Equity Research Group. In Territories where a
publication is intended to provide information to assist in-
company’s exposure to and management of ESG risks. In Distributor distributes our report, the Distributor is solely
stitutional investors in making their own investment de-
other words, ESG Risk Ratings measures a company’s un- responsible for complying with all applicable regulations,
cisions, not to provide investment advice to any specific
managed ESG Risks represented as a quantitative score. laws, rules, circulars, codes and guidelines established by
investor. Therefore, investments discussed and recom-
Unmanaged Risk is measured on an open-ended scale
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local and/or regional regulatory bodies, including laws in Limited. Morningstar Investment Adviser India Private
For a list of securities which the Equity Research Group
connection with the distribution third-party research re- Limited is registered with SEBI as a Portfolio Manager (re-
currently covers and provides written analysis on please
ports. gistration number INP000006156) and as a Research En-
contact your local Morningstar office. In addition, for his-
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torical analysis of securities covered, including their fair
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Morningstar Equity Analyst Report | Report as of 16 Oct 2023 17:28, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 20

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Price vs. Fair Value

Fair Value: 48.00

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Bulls Say Damien Conover, CFA, Sector Director, 24 Aug 2023

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Fair Value Last Close Fair Value

Analysis Security 1 Security 2 Security 3 Security 4

Bears Say Damien Conover, CFA, Sector Director, 24 Aug 2023

Economic Moat Damien Conover, CFA, Sector Director, 24 Aug 2023

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Capital Allocation Damien Conover, CFA, Sector Director, 24 Aug 2023

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Analyst Notes Archive

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Unchanged Damien Conover, CFA, Sector Director, 2 May 2023

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Competitors Price vs. Fair Value

Eli Lilly and Co LLY

Last Close: 609.20

600 Over Valued

Merck & Co Inc MRK

Last Close: 104.01

150 Over Valued

1.09 0.88 0.82 0.82 1.14 1.01 Price/Fair Value

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

GSK PLC GSK

Fair Value: 2,200.00

0.83 0.99 0.75 0.93 0.65 0.69 Price/Fair Value

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

Morningstar Historical Summary

Valuation as of 29 Sep 2023

Morningstar Analyst Historical/Forecast Summary as of

Pfizer Inc PFE QQQQQ 13 Oct 2023 21:16, UTC

ESG Risk Rating Breakdown

Management Values u Management measures a company ’s ability to manage

Management Gap4 15.4 100 0 programs, practices, and policies

Overall Unmanaged Risk 18.5 much manageable risk a company is managing

ESG Risk Rating ESG Risk Rating Assessment5

Eli Lilly and Co LLY 13 Oct 2023 21:16, UTC

Merck & Co Inc MRK 13 Oct 2023 21:16, UTC

GSK PLC GSK 14 Oct 2023 00:15, UTC

Research Methodology for Valuing Companies

Our Uncertainty Rating is meant to take into account any-

Research Methodology for Valuing Companies

Our recommended margin of safety—the discount to fair

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

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