Jefferies analyst, Jeffrey Holford, performed a SOTP valuation on fizer (NYSE: PFE) after the Allergan deal was terminated and believes shares have 18% upside by 2017 as the decision on the split has been reinstated to 2016. He also sees the potential for major M&A to give more critical mass to GIP in particular. Using a SOTP analysis, he derives a value of $42 however to derive the price target, he uses a 50:50 blend of SOTP and PE valuation to arrive at $39.

The termination of the proposed merger with Allergan was disappointing but it was anticipated and has been replaced by the "Optionality" around the separation of GEP as a primary valuation driver for Pfizer shares.

The analyst believes that the cash flow generation and durability of the GEP business are underappreciated. Separation of this business into a distinct, identifiable dividend stream should convert the market perception from an 8x-10x PE multiple toward a yield based valuation, equivalent to c13.7x on a PE basis, or c$16 per share. The key issue is whether Pfizer management believes that the primarily OUS cash flows can be effectively distributed to shareholders from a US tax domiciled entity.

The full SOTP analysis points toward a valuation of c$42 for Pfizer with GEP, GIP and VOC valued at c$16, c$8 and c$18, respectively. However, management's decision on whether or not to split the company could be influenced by tax as well as the need to potentially add further critical mass to GIP.

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Shares of Pfizer closed at $32.93 yesterday.