In an article this week, Barrons notes that the big drug stocks trade today for just 12 to 14 times projected 2004 profits. The last time the drug stocks saw valuations like these was in 1993-94 when Wall Street feared President Clinton’s health-care proposals would lead to industry price controls.
Pfizer and Merck are two of the stocks mentioned in the article. The consensus earnings projection for PFE over the next 12 months is $2.33. Using Friday’s closing price of $28.50, the forward PE is (28.50/2.33) or 12.2. PFE’s historical 10-year average PE is 32.6.
The consensus earnings projection for MRK over the next 12 months is $2.77. Using Friday’s closing price of $30.50, the forward PE is (30.50/2.77) or 11.0. MRK’s historical 10-year average PE is 22.6.