2 Reasons to Buy Pfizer and 1 Reason to Sell

Pfizer (PFE 2.40%) nearly doubled its revenue last year by pulling in $81.3 billion, second only to Johnson & Johnson among pharmaceutical companies. Yet, the stock is down more than 19% this year.

Now that Pfizer is trading at a little more than nine times earnings, might it be a good entry point for investors? Here are two reasons to buy the stock and one not to now:

Potential risks are already baked into the stock

Pfizer trades for roughly $81 a share because investors expect the company's revenue to fall back to its 2020 level of $41.9 billion. The record revenue last year owed a great deal to the $36.8 billion from its COVID-19 vaccine, Comirnaty.

But that also ignores three factors: Pfizer was a profitable company before COVID, its Comirnaty (and Paxlovid COVID therapy) sales aren't completely going away, and Pfizer has a huge pipeline of therapies in late-stage trials.

In the third quarter, Pfizer reported $26.2 billion in revenue, down 6% from the prior year, when its COVID-related sales were booming. If you take COVID revenue out of the equation, its operational revenue would have been up 2%, year over year. The company's earnings per share (EPS) of $1.51 represented a rise of 6% over the same period last year.

In the third-quarter report, the company said it expected $22 billion in sales this year from Paxlovid. Now that CVS pharmacists are directly prescribing the treatment to patients, that number might be higher because getting the antiviral won't require a doctor's visit.

The company also said it expects $34 billion this year from Comirnaty, the COVID vaccine it developed with BioNTech. So if we assume that COVID sales won't vanish next year but significantly decline (perhaps as much as 50% from this year), that would mean only $28 billion in COVID revenue next year for the company. But it might not take as much sales volume to reach higher numbers because the company said it plans to charge from $110 to $130 a shot for Comirnaty once its government contracts run out.

Could Pfizer replace the other $28 billion with sales of its current and new therapies? Probably not in 2023, but certainly in the years ahead. CEO Albert Bourla said the company should have 19 new products over the next 18 months, including five that are already being marketed. 

The company is also seeing increased sales for its Prevnar pneumococcal bacteria vaccines, which were up 28% in the third quarter. The company also saw a 33% rise in revenue in the quarter for blood thinner Eliquis and a 29% revenue rise for Vyndaquel, used to treat cardiomyopathy, a disease of the heart muscle. 

A solid dividend and regular stock buybacks

Pfizer raised its quarterly dividend by 2.5% this year to $0.40 a share, the 14th consecutive year it has increased its dividend, which offers a yield of 3.33%, almost twice the S&P 500 average yield of 1.82%. Over the past 10 years, the company has increased its dividend by 67%, and based on its cash dividend payout ratio of 38%, there's room for continued growth. 

The dividend helps to reward the company's long-term investors, giving them reason to hold on to the stock until its pipeline delivers more revenue. Last year, Pfizer returned $6.7 billion to shareholders in dividends and made $2 billion in stock buybacks to prop up the stock's price.

The company will have to replace more than its COVID franchise

Nobody expects Pfizer's COVID therapies to keep paying off forever, and to some extent, that reality is already factored into the pharmaceutical stock's price. In the long term, though, the company is facing patent cliffs over the next decade for three of its top-selling drugs: Eliquis, breast cancer therapy Ibrance, and rheumatoid arthritis drug Xeljanz.

Pfizer has put its COVID-related profits to work with acquisitions, and now it has to hope those pay off with other blockbusters. It completed its $11.6 billion purchase of Biohaven Pharmaceuticals and its $5.4 billion acquisition of Global Blood Therapeutics in October.

Biohaven is known for its migraine therapies, including Nurtec ODT, which did $462.5 million in sales last year. Global Blood Therapeutics specializes in sickle cell disease treatments, including Oxbryta, which did $195 million in sales last year and $71.6 million in sales in this year's second quarter.  Both acquisitions also have therapies in early-stage trials that could pay off down the line.

All in all, there are multiple reasons for investors to be optimistic about Pfizer's prospects.