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Better Buy: Gilead Sciences vs. Pfizer

By Keith Speights - Mar 1, 2020 at 2:00PM

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The times are changing for these two drugmakers. One of them appears to be in a slightly better position to navigate those changes.

Gilead Sciences (GILD 0.63%) and Pfizer (PFE 2.15%) are each in a state of transition. The top executives at Gilead are totally different than they were just one year ago. Pfizer is in the midst of slimming down and narrowing its focus.

Both drugmakers have faced significant headwinds in the last couple of years. However, both also have reasons to be optimistic about the future. Which stock is the better pick now for long-term investors? Here's how Gilead and Pfizer stack up against each other.

Scientist holding two test tubes

Image source: Getty Images.

Growth prospects

If you believe Wall Street analysts, Pfizer will deliver much stronger growth than Gilead Sciences will over the next five years. Analysts project that Pfizer's earnings will grow by 9% annually on average, while Gilead's earnings will increase by an average of only 1.4% per year.

It's important to note that Pfizer's growth will be boosted considerably by the company's move to spin off its Upjohn unit and merge it with Mylan (MYL). This transaction will remove the older drugs that are weighing on Pfizer's revenue and earnings growth, notably including Lyrica.

Pfizer will be left with a stable of successful drugs that should drive sales and earnings higher for years. Market researcher EvaluatePharma thinks that blood thinner Eliquis, which Pfizer co-markets with Bristol-Myers Squibb (BMY 0.34%), will rank among the world's five biggest-selling blockbusters by 2024. Pfizer's breast cancer drug Ibrance should experience a sales boost as an adjuvant therapy. Rare-disease drug Vyndaqel will almost certainly continue to build momentum.

The company's pipeline could also provide some big winners of the future. Pfizer claims nine drugs awaiting regulatory approval and another 23 candidates in late-stage testing. Many of these programs target additional indications for already-approved drugs, but the company also has promising new candidates including pain drug tanezumab and pneumococcal vaccine PF-06482077.

Gilead's growth will be driven in part by its HIV franchise, especially Biktarvy. However, the biotech also faces the prospects of declining sales for some of its older HIV drugs that have lost or will lose exclusivity.

The coronavirus outbreak has also created an unexpected opportunity for Gilead. While the company initially developed remdesivir to treat the Ebola virus, the antiviral drug has shown promise in treating coronavirus disease COVID-19. A World Health Organization official even stated publicly that remdesivir is the "one drug right now that we think may have efficacy." 

However, the biggest potential growth driver for Gilead over the next few years is filgotinib. The company hopes to win FDA approval for the drug in treating rheumatoid arthritis later in 2020. Gilead is also evaluating filgotinib in late-stage studies targeting several other autoimmune diseases.

Dividends

Both Gilead and Pfizer offer attractive dividends. Pfizer's dividend yield currently stands at nearly 4.5%, while Gilead's dividend yields over 3.6%.

But Gilead seems likely to catch up with and surpass Pfizer in the future. The biotech has increased its dividend by 58% since initiating a dividend program in 2015. Pfizer boosted its dividend by 36% during this period.

Also, Pfizer's dividend will be reduced once its Upjohn spinoff is completed. The good news is that Pfizer shareholders will receive shares of the new company, Viatris, which will also pay a dividend. The combination of dividends from Pfizer and Viatris is expected to be roughly at the same level as Pfizer's current dividend. 

However, if investors don't hold on to their Viatris shares, their dividend payouts won't be as high. And if they do keep shares of Viatris, the growth prospects will be lower than Pfizer's prospects will be.

Valuation

If you're looking for the better bargain, there's a pretty good case to be made for Gilead. The biotech stock trades at only 10.3 times expected earnings and 3.8 times trailing-12-month sales. 

Pfizer appears to have an attractive valuation, though. Its shares currently trade at 13.4 times expected earnings and nearly four times trailing-12-month sales.

Better buy

I like both of these stocks. I own both of these stocks. But if I could only pick one, it would be Pfizer.

My decision boiled down to risk. Pfizer has a much larger pipeline than Gilead does, so its eggs are spread across more baskets. With the spin-off of its Upjohn unit, the drugmaker is clearing out some of the baggage that has constrained growth. Although I think both of these stocks will deliver solid long-term returns, I think Pfizer will perform better over the next five years.

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Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$52.75 (2.15%) $1.11
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$62.73 (0.63%) $0.39
Viatris Inc. Stock Quote
Viatris Inc.
MYL
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$76.22 (0.34%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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