If you've been hesitant to buy Pfizer (PFE -1.83%) stock recently, the market's reaction to the company's latest earnings release probably didn't improve your mood.
Fourth-quarter earnings that missed expectations haven't done Pfizer's stock price any favors. Investors who read past the headline numbers, though, found plenty of reasons to buy this pharmaceutical stock now and hold on to those shares for at least the next decade.
Here's why buying shares of Pfizer now and holding them for the long run could do wonders for your portfolio, too.
Durable vaccine sales ahead?
Pfizer got everyone's attention with a $15 billion estimate for 2021 sales of BNT162b2, the coronavirus vaccine developed in partnership with BioNTech (BNTX -1.72%). After factoring in BioNTech's share of sales and operating costs, Pfizer expects a profit margin percentage in the high 20s.
Roughly $4 billion in pre-tax earnings is a big deal to any company -- even for a pharmaceutical giant like Pfizer -- but what happens after everyone's been vaccinated once? During its fourth-quarter earnings call, Pfizer also told investors that demand for COVID-19 vaccines appears durable thanks to emerging variant strains of the virus. Annual updates to Pfizer and BioNTech's coronavirus vaccine could become a big source of recurring revenue for Pfizer.
Pfizer has had one of the industry's largest research and development budgets for decades, but it hasn't always been productive. In fact, your opinions about the company's drug development skills probably depend on when you began paying attention.
During the five years ended 2015, Pfizer's clinical trial success rates were significantly worse than the industry average. Over the past five years, though, the company has gotten better at choosing which new drug candidates deserve further investment. Pfizer's end-to-end clinical trial success rate of 21% over the past five years works out to roughly two and a half times the industry average.
In 2019, Pfizer spun off its collection of over-the-counter drugs like Advil into a separate company. Last year, the company merged its collection of drugs that have been around long enough to lose patent-protected market exclusivity with Mylan, forming Viatris.
From now on, Pfizer can focus all its resources on developing new sources of revenue, some of which could begin adding to the top line in a matter of months. In April, the Food and Drug Administration is expected to make an approval decision regarding abrocitinib, a potential new treatment for eczema.
The FDA is also reviewing an application for a 20-valent pneumonia vaccine that protects against seven more sources of infection than Pfizer's successful Prevnar 13 brand. New COVID-19 sales notwithstanding, Prevnar 13 is the world's top-selling vaccine at the moment, with $7 billion in annualized sales.
In 2021, we'll see if Braftovi can become a first-line treatment for a genetically defined group of advanced-stage colon cancer patients. Braftovi's currently approved to treat similar patients in the second-line setting. Moving up to first could add more than $2 billion in annual revenue to the company's top line within a few years.
At recent prices, shares of Pfizer have been trading at just 13.7 times the company's 2021 earnings expectations, and that's before factoring in potential coronavirus vaccine sales. That's not a lot for a company expecting growth on the bottom line at a double-digit percentage this year and steady growth over the long run.
Without accounting for COVID-19 vaccine sales, Pfizer expects top-line revenue to rise at an annual growth rate of 6% or better through 2025. The company's already on pace to meet this expectation with non-coronavirus revenue expected to rise 6% year over year in 2021.
Once we factor in COVID-19 vaccine sales, it's clear that Pfizer's going to have a lot of extra cash to continue bumping up its dividend payout. The stock already offers a 4.5% yield at recent prices, which means your shares could become a significant source of income once you're ready to retire.