Is Pfizer (PFE) the Steal of the Century?

Covid was a boon to Pfizer (PFE), more than doubling revenues in less than a year.

Now, it’s back to the drawing board.

Shares of the company have fallen more than 50% from their all-time-highs in late 2021, as sales from Covid wane.

Yet, Pfizer’s stock trades at the same price it did in 2015, when sales were about the same if you exclude Pfizer’s Covid products.

However, Pfizer’s revenues flatlined through 2020.

Today, the company has a robust pipeline with plans to double sales by 2030.

Does that make Pfizer, which pays a 5.9% dividend and trades at 10x forward cash and 18x forward earnings, a steal?

Pfizer’s Business

During WWII, Pfizer manufactured penicillin for allied soldiers.

In the ‘90s, the company gained notoriety for Zoloft, its breakthrough antidepressant.

Today, the company is best known for its COVID-19 vaccines and its oncology, cardiology, endocrinology, and neurology treatments. 

However, with interest in COVID-19 treatments fading, Pfizer has had to pivot to other growth lines.

Source: Pfizer Q4 2023 Investor Relation

Currently, COVID-19 products make up 1/5th of Pfizer’s revenues. Though declining, they won’t ever disappear entirely.

Vyndaqel has been the big winner for the company, a cardiomyopathy treament family that’s grown 36% in the past year and now accounts for 6% of revenues.

Financials

Source: Stock Analysis

Although Pfizer’s revenues climbed mightily in the past few years, gross and operating margins declined.

This was a combination of  a non-cash charge of $6.2 billion and unfavorable changes in sales mix due to lower sales of Paxlovid and Comirnaty, which includes the unfavorable impact of the $3.5 billion non-cash Paxlovid revenue reversal.

Essentially, they’re all one-time items.

The one notable change the balance sheet is the $75.3 billion in total debt up from $39.4 billion in 2022, as the company closed its acquisition of Seagen.

Seagen’s oncology treatments look exceptionally promising and could add a huge boost to Pfizer’s sales pipeline if they get approved.

Valuation

Source: Seeking Alpha

Despite its significant  decline in share price, Pfizer trades at 18.4x next year’s earnings and 10.0x forward operating cash.

That’s cheaper than its historical, but not as cheap as competitors like Bristol Myers Squibb (BMY). 

However, Bristol Myers faces a huge growth problem whereas Pfizer has a healthy pipeline.

Growth

Source: Seeking Alpha

Pfizer’s growth numbers don’t look great coming off the highs borne from its COVID-19 products. Analysts believe it may take until well into 2025 if not 2026 before this trend reverses.

In the meantime, its all about setting itself up for the future and profitability.

Profitability

Source: Seeking Alpha

After a year of one-off items, Pfizer expects its margins to start to normalize in 2024.

While they haven’t provided exact details, the company reaffirded its guidance with anticipated revenues of $58.5-$61.5 billion and EPS between $2.05-$2.25 per share.

Our Opinion 8/10

Pfizer is doing what it needs to to position itself for the future.

Its Seagen acquisition, tough expensive, could lead to a massive payoff.

And as operations improve, so should profitability.

We don’t expect them to cut the dividend unless things quickly turn south.

Given the risk/reward, we like Pfizer here as a long-term play.