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Why Pfizer Stock Didn't Soar After Its Fantastic Q1 Results

By Keith Speights and Brian Orelli, PhD - May 14, 2021 at 6:01AM

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There's still uncertainty about the big drugmaker's future COVID-19 vaccine revenue.

Pfizer (PFE 3.77%) recently announced very good first-quarter results. Revenue and profits soared. The big drugmaker even raised its full-year guidance. However, its share price barely moved. In this Motley Fool Live video recorded on May 5, Motley Fool contributors Keith Speights and Brian Orelli discuss why Pfizer stock didn't soar after its fantastic Q1 results.

Keith Speights: Well, Brian, we talked about this being the thick of earnings season and we've had several big earnings reports already this week. One of them was Pfizer. Pfizer reported really great first-quarter results on Tuesday. What especially stood out in your view with Pfizer's update?

Brian Orelli: Yeah. I thought it was a good quarter, but shares only went up 0.3% on the day that they had reported. It's running up quite a bit in March and April, so maybe some of the good news was already pressed in.

Revenue was up 42%. Most of that increase was obviously due to the addition of the coronavirus. But even if you back that out, revenue was up sold at 8%. With the company's largest Pfizer, I'll take anything between the top half of five and 10 is pretty good in my book, and that 8% includes factoring in a 5% negative impact from pricing. I think we've talked about a couple of other companies who have seen negative pricing impacts, so the 8% looks even better.

Sales of blood thinner Eliquis were up 26%. The oncology franchise was up solid at 18%. There were three additional selling days in the U.S. and four in international markets. That might have helped the quarter a little bit more when you're comparing it year-over-year to the previous quarter.

Adjusted earnings were up 47%, it seems like they're making a decent profit on the vaccines because we're looking at revenue was up 42% and adjusted earnings were up 47%. They're growing the bottom line faster than top line, which tells me that the margins on the vaccines are probably pretty decent.

I don't think we really knew what their costs were going to be. Obviously, there's no marketing cost, you don't have to advertise the coronavirus. Gross margins are probably lower, but then the lack of selling cost helps create the operating margins consistent.

They upped the 2021 guidance and are now looking for $70.5 billion to $72.5 billion. That puts it looking pretty cheap right now based on the midpoint of the guidance, it's trading at 3.1 times 2021 sales and 11.1 times adjusted earnings guidance.

Then on top of that, you get a 3.9% dividend yield. That tells me that investors are still concerned about how long the coronavirus vaccine sales can continue. If they are going to continue indefinitely, that's back-up-the-truck levels valuations, 3.1 times sales is pretty low, but I think that could ratchet up if the vaccine levels ratchet down and the price is the same.

Speights: Yeah. I think you're right. I think if investors were convinced that Pfizer was going to be able to generate even a big chunk of recurring revenue from its COVID vaccine as it's going to do this year, the stock would be a back-up-the-truck buy.

I did notice that Pfizer CEO mentioned something and I'm paraphrasing here. He did say that it's looking increasingly like they're going to have pretty strong recurring revenue. He's thinking that the odds are pretty good that annual vaccination is going to be required and Pfizer will be in a good competitive position there.

It's possible that Pfizer's COVID-19 vaccine revenue will continue to be strong, maybe not at 2021 levels, but in 2022, 2023, and beyond, it's very possible anyway that the company could make a lot of money going forward from this vaccine. If so, the valuation looks pretty attractive.

Orelli: Yeah. I definitely think 2022 is going to be as strong or stronger than 2021. What 2023 looks like, it depends a lot on the variants and whether we get this under control. As we get more and more people vaccinated, then the number of variants will go down because it can only create a variant if it's replicating in a human. If it's not replicating and if everybody's vaccinated, then the number of people that it's replicating in it can go down. I think the big question is going to the variants in 2023 on the valuation of all the coronavirus vaccine makers.

Brian Orelli, PhD has no position in any of the stocks mentioned. Keith Speights owns shares of Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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