John Henriques

Presentation Outline

• Snapshot• Current Position• Profile• Current News• Financial Statements• Industry Comparison• Stock Comparison• Trend Analysis• Common Size Analysis• Stock Valuation Model

• EVA & MVA Model• Free Cash Flow Model• ValuePro Valuation• Summary of Models• Analyst

Recommendation• Risk• Effects on SMIP Portfolio• Investment Thesis

Snapshot

• Market Cap: $209.91 Billion• Industry: Pharmaceutical• Sector: Healthcare• Recent Stock Price: $27.50• 52 Week High: $38.89• 52 Week Low: $27.02• Beta: 0.82• Ticker Symbol: PFE

Current Position

• 100 Shares (2.94% of SMIP Portfolio)• Purchased November 13, 2000• Purchased at $42.23 for a value of

$4,223• Current Position at $27.50= $2,750• Incurred Loss (w/out

dividends)=($1,473)• Incurred Loss (w/ dividends)= ($1,257)

Profile

• Pfizer, incorporated in 1942, is a global, research based pharmaceutical company. The Company discovers, develops, manufactures, and markets prescription medicines for humans and animals, as well as consumer healthcare products.

• Pfizer’s 2003 acquisition of Pharmacia allowed the Company to becomes the worlds largest pharmaceutical company. The acquisition improved depth, global marketing strength and financial resources.

• The Company currently operates in three business segments: Pharmaceuticals, Consumer Healthcare, and Animal Healthcare.

• Competitors: Merck & Co.(MRK), Bayer Aktien(BAY), Novartis(NVS),

Current News

• November 8, 2004 It is anticipated that Pfizer will add a “black box” warning (strongest possible) to its pain killer, Bextra.

• November 4, 2004 Pfizer shares dropped to a new 52-week low when a Canadian newspaper article linked the Company’s arthritis drug, Celebrex, to 14 deaths.

• November 3, 2004 Following the presidential

election of George W. Bush the pharmaceutical industry surged after months of uncertainty.

Current News (Continued)

• October 28, 2004 Pfizer announced a program to buy back $5 billion of the Company’s common stock by the end of 2005. Hank McKinnel, CEO stated “The program capitalizes on Pfizer’s financial and operational strength to increase shareholder value”.

• October 7, 2004 Pfizer shares fell up to 7% after it was expected that a federal judge would refuse the Company’s motion to block a generic version of Pfizer’s $2 billion epilepsy drug, Neurontin.

Financial Statements

• Please refer to Handout

Industry Comparison

Valuation Ratios PFE MRK NVS Industry Sector S&P 500P/E Ratio (TTM) 26.7 10.29 21.98 21.88 27.71 22.06Beta 0.36 0.32 0.05 0.35 0.48 1Price to Sales (TTM) 4.18 2.97 4.15 3.63 5.28 3.09Price to Book (MRQ) 3.15 4 3.8 4.4 4.82 3.92% Owned Institutions 65.53 59.6 5.81 65.05 47.13 65.13

Dividends PFE MRK NVS Industry Sector S&P 500Dividend Yield 2.45 4.97 1.41 2.73 2.22 2.15Dividend 5 Year Growth Rate 18.82 8.94 6.11 12.66 12.86 7.36

Growth Rates(%) PFE MRK NVS Industry Sector S&P 500Sales - 5 Yr. Growth Rate 14.23 -3.52 -1.47 9.31 16.22 9.5EPS (TTM) vs TTM 1 Yr. Ago 88.87 -11.71 43.14 39.03 29.44 25.92EPS - 5 Yr. Growth Rate -15.11 6.35 -0.06 1.9 12.8 12.64

Financial Strength PFE MRK NVS Industry Sector S&P 500Quick Ratio (MRQ) 1.09 1.04 1.87 1.17 1.95 1.3Current Ratio (MRQ) 1.46 1.37 2.41 1.65 2.58 1.81Total Debt to Equity (MRQ) 0.28 0.39 0.2 0.39 0.42 0.8

Industry ComparisonContinued

Profitability Ratios (%) PFE MRK NVS Industry Sector S&P 500Gross Margin (TTM) 80.1 80.22 76.51 72.86 68.55 47.88EBITD Margin (TTM) 23.91 41.46 29.31 26.43 22.48 21.15Net Profit Margin (TTM) 17.55 26.77 21.01 18.05 13.79 13.99Net Profit Margin - 5 Yr. Avg. 18 4.96 21.23 5.62 7.86 11.32

Management Effectiveness (%) PFE MRK NVS Industry Sector S&P 500Return On Assets (TTM) 7.55 15.93 11.96 11.21 8.06 7.15Return On Investment (TTM) 9.45 21.33 14.72 15.01 10.96 10.9Return On Equity (TTM) 13.46 42.12 17.5 22.91 17.53 19.5

Efficiency PFE MRK NVS Industry Sector S&P 500Receivable Turnover (TTM) 5.37 5.48 6.29 6.03 7.08 10.06Inventory Turnover (TTM) 1.65 2.53 1.87 2.53 4.02 12.55Asset Turnover (TTM) 0.43 0.65 0.57 0.65 0.74 0.93

Stock Comparison (1 Year)

Stock Comparison (5 years)

Trend Analysis

Trend Analysis (Continued)

Common Size Analysis% of Sales Dec-03 Dec-02 Dec-01Sales Revenue 100 100 100COGS 15.34 12.49 13.17Sell, Gen & Adm Expense 49.05 49.46 49.93Operating Income 35.61 38.04 36.89Net Non-Op L 27.79 0.71 1.58Interest Expense 0.01 0.02 0.05Income Tax Expense 3.59 8.06 8.38EBIT 35.61 38.04 36.89Research and Development 15.78 15.99 16.7

% of Total AssetsCash & Near Cash 1.3 4.05 2.65Marketable Securities 8.93 23.02 19.36Acct & Notes Receivable 7.85 13.34 12.94Inventory 5 5.78 6.35Total Current Assets 25.47 53.46 49.07Other Assets 53.61 12.3 11.32Net Fixed Assets 15.66 23.11 24.99

% of Total Liabilities & EquityAccounts Payable 2.23 3.49 3.6ST Borrowings 7.55 18.7 16Current Liablities 20.26 40.03 35.07LT Borrowings 4.93 6.77 6.66Total Liabilities 44.01 56.96 53.28Shareholder Equity 55.99 43.04 46.72

Basic Stock Valuation (Inputs)

NAME OF COMPANY Pfizer

LAST YEAR 2004 Year

NUMBER OF SHARES OUTSTANDING (Mil.) 7,550.78 Millions of Shares

MARKET PRICE OF STOCK / SHARE $27.50 Dollars Per Share $40.00 Price of Stock

NET INCOME AFTER TAXES $9,000.00 Millions of Dollars Expected in

TOTAL SALES OR REVENUES $47,000.00 Millions of Dollars 5 years

BOOK VALUE OF EQUITY (FROM BALANCE SHEET) $68,500.00 Millions of Dollars

RISK FREE RATE (L/T T-Bond) 4.90% Annual Percentage Rate

DIVIDENDS PAID (TOTAL AMOUNT PAID) $5,200.00 Millions of Dollars

STOCK REPURCHASES (TOTAL AMOUNT PAID) $5,000.00 Millions of Dollars

REQUIRED INFORMATION FOR CALCULATION OF REQUIRED RATE OF RETURN

BETA OF STOCK 0.82

MARKET RISK PREMIUM (5%-6% Historically) 6.00% Expected Market Risk Premium %

REQUIRED INFORMATION FOR VARIABLE GROWTH RATE VALUATIONSEXPECTED GROWTH RATE (EARNINGS OR DIVIDENDS & STOCK REPURCHASES) 8.0000% 8.0000% 6.0000% 6.0000% 6.0000%

Must be positive values in each cell

All Data Required

Required Data

Basic Stock ValuationCOMPUTER-GENERATED CALCULATIONS

EARNINGS PER SHARE $1.19LAST CASH DIVIDEND & STOCK REPURCHASE PAYMENT PER SHARE $1.35

EXPECTED ANNUAL GROWTH RATE (EARNINGS OR DIVIDENDS & STOCK REPURCHASES) 6.73%

EXPECTED EARNINGS PER SHARE IN 5 YEARS $1.21SUSTAINABLE RATE OF GROWTH -1.75%

REQUIRED RATE OF RETURN (k) 9.82%REQUIRED RATE OF RETURN (k) 11.77%REQUIRED RATE OF RETURN (k) 10.80%

COMPUTER-GENERATED CALCULATIONS

STOCK VALUE - ZERO GROWTH MODEL $12.43

STOCK VALUE - CONSTANT GROWTH MODEL $35.24

STOCK VALUE - VARIABLE GROWTH MODEL $30.76

STOCK VALUE - DIVIDEND & EARNINGS MODEL $29.96

STOCK VALUE - PRICE / EARNINGS MODEL $45.73

EVA/MVA (Inputs)Name of Company Pfizer Year 2004

Short-Term Debt $10,423.00

Long-Term Debt $6,142.00Preferred

Dividend $Preferred

Stock Price

Preferred Stock $219.00 $2,518.00 $40,300.00

Common Stock $435.00

Paid-In Capital $67,059.00

Retained Earnings $35,347.00

Total Invested Capital $119,625.00

Price of Stock $27.50

Number of Shares Outstanding 7,550.78

EBIT $11,459.00

Tax Rate 20.72%

Less: Taxes $2,374.30Equals NOPAT $9,084.70

Rate on Short-Term Debt 2.36%

Rate on Long-Term Debt 4.59%

Market Risk Premium 4.90%

Risk-Free Rate 6.00%

Debt to Equity Ratio 16.11%

Beta of Stock 0.82

Cost of Preferred Stock 6.25%Cost of Equity Capital 10.018% % S-T Debt % L-T Debt % Equity % Preferred StockWACC 9.07% 8.71% 5.13% 85.97% 0.18%

EVA/MVA Model

CALCULATION OF EVA - ECONOMIC VALUE ADDED

EBIT Less: Taxes

Equals: NOPAT (Net

Operating Profit After

Tax) Invested Capital WACC

Capital Charge

EVA (NOPAT *

Capital Charge)

$11,459.00 $2,374.30 $9,084.70 $119,625.00 9.07% $10,844.20 ($1,759.50) Firm is Destroying Shareholder Wealth

CALCULATION OF MVA - MARKET VALUE ADDED

Market Value of Equity

Plus: Market Value of Debt

Equals: Market Value

of Firm

Minus: Total Invested Capital Equals: MVA

$207,646.45 $16,565.00 $224,211.45 $119,625.00 $104,586.45Firm is Creating Shareholder Wealth

Free Cash Flow Inputs Estimate Free Cash FlowCurrent Sales ($)$47,000.00EBIT Margin (%)20.00%EBIT $9,400.00Plus - Depreciation$4,500.00Less - Capital Expenditures$3,000.00Less - Net Change in Working Capital$700.00Equals Operating Cash Flow$10,200.00Less Taxes$2,350.00Equals Free Cash Flow$7,850.00

Name of Company Pfizer

Insert Initial Free Cash Flow (Computer) $7,850.00Insert Initial Growth Rate 8.00%Insert Terminal Growth Rate 6.00%Insert Weighted Average Cost of Capital 8.71%How Many Years is Growth Projected 5Number of Shares of Common Stock 7,550.78Tax Rate 25.00%Total Debt Outstanding $17,000.00

Estimate Weighted Average Cost of Capital9.820% Cost of Equity Capital3.200% Before Tax Cost of Debt6.000% Market Risk Premium (RM-RF)

15.000% Debt Ratio (Total Debt/Total Assets)0.820 Beta4.900% Risk-free Rate (Use L-T Treasury Rate)8.707% = Weighted Average Cost of Capital

Free Cash Flow ModelYear 0 1 2 3 4 5

Free Cash Flow

$0 $8,478 $9,156 $9,889 $10,680 $11,534

Terminal Value

$451,654

Total FCF $0 $8,478 $9,156 $9,889 $10,680 $463,188Discounted

FCF $0 $7,799 $7,748 $7,698 $7,648 $305,120

Net Present Value of FCF

$336,012

Net Present Value of FCF Minus Debt

$319,012

Per Share Value $42.25

ValuePro.netExcess Return Periods 5Revenues ($mil) 50000Growth Rate % 8Net Oper. Profit Margin % 36.4Tax Rate % 20.72Stock Price 27.5Shares Outstanding (MIL) 7550.810-Yr Treas. Yeild % 5Bond Spread Treasury % 1.5Dep. Rate (% of Rev) 8.6Investment Rate (% of Rev) 5.61Working Capital (% 0f Rev) 24Short-Term Assets ($mil) 39057Short-Liabilities ($mil) 25239Equity Risk Premium (%) 6Company Beta 0.82Value Debt Out. ($mil) 18000Value Pref. Stock Out. ($mil) 200Company WACC (%) 7.37

Instrinic Value of Stock $27.71

ValuePro.net Intrinsic Value of Stock

Summary of Valuations

• Basic Stock Valuation: • Average (w/out zero growth model): $35.42

• EPS: $1.19

• EVA: Destroying S.H. Wealth MVA: Creating S.H. Wealth

• Free Cash Flow:• NPV of FCF (minues debt)= $319, 012

• Per Share Value = $42.25

• Value Pro:• Intrinsic value= $27.71

Analysts’ Recommendation

Updated:11/12/04(Strong Buy) 1.0-5.0 (Strong Sell)

Concensus: Outperform

Linear Scale Current 1 Month Ago 2 Months Ago 1 year Ago(1) Buy 10 11 9 12

(2) Outperform 11 11 10 7(3) Hold 7 7 8 10

(4) Underperform 0 0 0 0(5) Sell 0 0 0 0

No Opinion 2 2 2 1Mean Rating 1.89 1.86 1.96 1.93

Risk• PFE currently constitutes 2% of SMIP’s

portfolio risk.

• Risk Grade:111

• 6 month: Min=69; Max=114; Avg=89

Risk Continued

Risks to Pfizer

• Patent Challenges/ Expirations

• Pricing Regulations

• Increasing Competition

• FDA Warnings (ex: Bextra)

• Foreign Importation (ex: Canada)

Investment Thesis• Pfizer adds diversification to the SMIP portfolio• Industry Leader (14 category leading products)• Management is focused on the future • Constantly expanding product portfolio

• Acquisitions, Mergers, R&D Industry Leader

• Short-term risks are currently built into stock price leading shares to be undervalued

• Increasing Dividends• Company for the 2nd consecutive year is

implementing a $5 billion buyback plan.

Recommendation

• Hold All PFE Shares

• Suggested Floor • $23.38 (15%)

• Suggested Ceiling• $42.23