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Better Buy: Gilead Sciences vs. Pfizer

By Keith Speights - Jan 23, 2021 at 6:08AM

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One has a top COVID-19 treatment, the other has a top COVID-19 vaccine. Which stock will come out on top.

You might think that Gilead Sciences (GILD 0.90%) and Pfizer (PFE 3.59%) would have delivered tremendous gains in 2020. After all, Gilead launched a much-heralded treatment for COVID-19 with Veklury (remdesivir), and Pfizer rolled out an even more anxiously awaited coronavirus vaccine. But neither of these stocks performed well last year. Gilead's shares sank 10%, while Pfizer's shares slipped nearly 1%.

The past is the past, though. Which of these stocks is the better pick moving forward? Here's how Gilead and Pfizer stack up against each other.

Gloved hands holding two test tubes

Image source: Getty Images.

Growth prospects

Gilead's biggest growth driver right now is Veklury. In the third quarter, the COVID-19 therapy generated nearly all of the company's revenue increase. There are some concerns, however, that Veklury's growth trajectory will taper off significantly as the pandemic comes to an end and new treatments emerge.

Gilead isn't solely dependent on Veklury. Its HIV drugs Biktarvy and Descovy continue to enjoy strong sales momentum. The big biotech is also seeing steady growth from its cancer cell therapies Yescarta and Tecartus. On a negative note, declining sales for Gilead's older HIV drugs and its hepatitis C franchise are offsetting some of these gains.

Gilead's pipeline includes 42 clinical programs, and eight of them are late-stage candidates. Unfortunately, three of those are targeting indications for filgotinib. Those programs could be in jeopardy after Gilead gave up on hopes of winning U.S. approval for the drug in treating rheumatoid arthritis.

Pfizer's most significant growth driver in 2021 will almost surely be its COVID-19 vaccine Comirnaty (BNT162b2). The company's lineup also features several other products with solid sales momentum, including blood thinner Eliquis, breast cancer drug Ibrance, rare disease drug Vyndaqel, and autoimmune disease drug Xeljanz. 

Until recently, Pfizer was held back by older drugs that had lost patent exclusivity and were experiencing sales declines. However, the company spun off its Upjohn unit. which was home to these drugs, and merged it with Mylan to form a new entity, Viatris. That transaction leaves Pfizer in a position to deliver solid revenue and earnings growth over the next few years.

Pfizer claims a deep pipeline with 92 clinical programs, 21 of which are in late-stage testing and another six awaiting regulatory approval. The company's promising late-stage candidates include pain drug tanezumab and pneumococcal vaccine PF-06482077, a successor to Prevnar 13 that could be a huge winner if approved as expected.

Dividends

Both of these drugmakers pay attractive dividends. They're also both in a good position to keep the dividends flowing for years to come.

Pfizer's dividend yield of 4.3% narrowly edges out Gilead's yield of 4%. However, Pfizer's dividend will be reduced a little soon as a result of the Viatris transaction. 

Gilead has rewarded investors with greater dividend hikes in recent years. Since initiating its dividend program in 2015, the big biotech has increased its dividend by 58%. Pfizer boosted its dividend payout by 39% during this period.

Valuation

Compared to most of their peers in the biopharmaceutical industry, Gilead and Pfizer are attractively valued. Gilead's shares trade at less than 10 times expected earnings. Pfizer's shares trade at 11.5 times expected earnings.

Better buy?

In my view, growth prospects are more important than either dividends or valuation when assessing these two stocks. And when it comes to growth, I like Pfizer's opportunities more than I do Gilead's.

Before the major disappointment for filgotinib, I was relatively bullish about Gilead's prospects. However, I'm less certain now. Gilead Sciences CEO Dan O'Day has led the company to gobble up several smaller oncology-focused biotechs with the hope of becoming a bigger player in the cancer-drug market. That strategy could pay off, but it's too soon to know for sure if O'Day will be successful.

Meanwhile, Pfizer finally appears to be on the right track after several years of wandering in the wilderness. I think the pharma stock will deliver market-beating total returns with its multiple growth drivers and solid dividend. 

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Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$52.47 (3.59%) $1.82
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$63.84 (0.90%) $0.57
Viatris Inc. Stock Quote
Viatris Inc.
VTRS
$11.80 (0.94%) $0.11

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

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