Despite co-developing the first COVID-19 vaccine to be authorized in the U.S. and undergoing a transformational spinoff, Pfizer's (PFE -0.44%) stock closed out 2020 almost exactly where it began the year.
Coming into the company's earnings announcement, investors were eager to learn how much the COVID-19 vaccine would impact financial performance and whether its new biopharmaceutical-focused structure would propel the company to the faster growth it had promised. The company delivered a bit of a Rorschach test, leaving investors to find optimism or disappointment depending on what they want to see. Here's what I took away from Pfizer's fourth quarter and full year 2020 earnings.
1 green flag
The midpoint of the 2021 revenue guidance, $59.4 billion to $61.4 billion, represents 44% growth from last year. Even without contribution from COVID-19 vaccine BNT162b2, the expected $44.4 billion to $46.4 billion represents 8.4% growth over 2020. That beats the negative 3.5% growth reported for fiscal 2019 and the 1.8% growth management just reported for 2020.
The acceleration was exactly what CEO Albert Bourla had in mind when spinning off the company's off-patent unit Upjohn into a new company combined with Mylan called Viatris (VTRS 0.46%) and letting GlaxoSmithKline (GSK -0.70%) control a joint venture with the two companies' consumer health businesses. Those two units were a drag on growth, with the consumer health business only growing 2% annually between 2015 and 2018, and Upjohn sales falling 24% since 2017. The CEO now has the science-minded company he wanted, focused on developing drugs that are first to treat a disease or better than existing treatments.
Of course, the vaccine it developed with partner BioNTech (BNTX -1.05%) will play a major part in Pfizer's results for at least the next year. Management reported delivering 65 million doses through Jan. 31, 29 million of which went to the U.S. government. Pfizer also expects to ship 200 million doses by the end of May. Although the vaccine only contributed $154 million in revenue during the fourth quarter, its share of the COVID vaccine revenue is expected to be $15 billion this year. It may not be the $19 billion some analysts were speculating, but the shipment projections are good news for everyone eager to get back to normal.
1 red flag
The guidance for sales growth is impressive, but the boost provided by the COVID-19 vaccine comes with a downside. After the gross margin has hovered around 80% for the past few years, management is projecting it will fall as low as 67% in 2021. Even removing BNT162b2 from the projections, gross margin is predicted to be 78% to 79%, roughly in line with previous years. That's after getting rid of the weaker consumer health and off-patent businesses. Maybe that's why the company made no share repurchases in 2020 or 2021 despite an authorization to spend as much as $5.3 billion. Whether the stock is a bargain depends largely on what happens beyond 2021.
The current $194 billion market cap is 4.6 times 2020 sales. That price-to-sales (P/S) ratio sits near the top of the 3.8 to 5.0 range of the past seven years. Looking forward, the stock trades at 3.2 times vaccine-inflated 2021 sales, far below the historical norm. Although sales from the COVID-19 vaccine won't last forever, the market seems to be ignoring them altogether. With competing vaccines coming soon from AstraZeneca (AZN -0.65%) and Johnson & Johnson (JNJ -0.51%), two companies that have pledged not to make a profit on the drugs during the pandemic, it's looking increasingly likely that BNT162b2 will do a lot more for humanity than for Pfizer shareholders.
Is Pfizer stock a buy?
Even though the company was able to deliver a vaccine in record time, and believes it will ship two billion doses this year, the stock has gone nowhere since before the pandemic. The CEO has delivered on his promise for more growth through innovation, and is beating the growth targets he originally set even without the COVID vaccine.
Although competing vaccines are on the horizon, it's becoming clear that virus mutations and booster shots could provide ongoing revenue beyond this year. Also, price competition won't be as fierce once the pandemic ends. The producers that have pledged to forgo profits have only committed to do so while the crisis persists. Although it's curious the company hasn't put its cash to use buying back shares, it might be saving up for a big acquisition. Regardless, a return to historical multiples could send the shares significantly higher. That makes the reward far greater than the risk for buying Pfizer stock.