It's often said that near-term fluctuations in the stock market are mostly based on noise rather than fundamentals.
Shares of Pfizer (PFE -3.85%) have tumbled 15% year to date even as the S&P 500 index has rallied 7%. This raises the question: Is this recent weakness in the pharmaceutical company a buying opportunity for income investors? Let's discuss Pfizer's fundamentals and valuation to address this question.
The last great quarter of growth (for now)
Over the course of its nearly 175 years in business, Pfizer has, time and time again, proven itself as an innovative company. In the many decades of corporate history leading up to the launch of its antiviral COVID-19 treatment, dubbed Paxlovid, and its COVID-19 vaccine co-owned with BioNTech (NASDAQ: BNTX), named Comirnaty, Pfizer was involved in critical moments in science. These include deep-tank fermentation that led to the mass production of the antibiotic penicillin and the discovery of citric acid.
Pfizer recorded $24.3 billion in revenue during the fourth quarter ended Dec. 31, which was up 1.9% over the year-ago period. Factoring out contributions from Comirnaty and Paxlovid, the company's revenue grew 5% year over year operationally. That's because, with demand dying down for Comirnaty, Pfizer's revenue dipped 9.4% over the year-ago period.
Double-digit revenue growth in other blockbuster products, such as the rare heart disease medication Vyndaqel and the pneumococcal pneumonia vaccine Prevnar, helped lead the drugmaker's revenue upward for the quarter.
Pfizer's non-GAAP (adjusted) diluted earnings per share (EPS) soared 44.3% year over year to $1.14 in the fourth quarter. Tight management of costs led the company's non-GAAP net margin to surge 790 basis points higher over the year-ago period. Along with a 0.4% reduction in Pfizer's outstanding share count, this explains how adjusted diluted EPS grew at a faster clip than revenue during the quarter.
Pfizer anticipates revenue will plunge approximately 31% to a midpoint of $69 billion in 2023 on fading COVID product revenue. But with 60 projects in late-stage clinical development, the company could launch numerous blockbuster drugs over the next few years to revitalize revenue.
Image source: Getty Images.
A well-covered and enticing dividend
Income investors will appreciate Pfizer's 3.8% dividend yield, which is more than twice the S&P 500 index's 1.6% yield. Best of all, the dividend obligation is quite low and could be raised in the years ahead.
This is because it is projected that Pfizer's dividend payout ratio will come in at under 49% in 2023. That leaves the company with the funds needed to complete bolt-on acquisitions, repurchase shares, and repay debt.
Pfizer's beaten-down stock is a buy
The volatile swings within the stock market tend to hit even the highest-quality businesses every now and again. This appears to have occurred with Pfizer in recent weeks. The stock's forward price-to-earnings (P/E) ratio of 10.8 is well below the drug manufacturer industry average of 14.
PFE PS Ratio data by YCharts.
This is arguably a compelling value for one of the most well-established pharmaceutical companies in the world. And if that wasn't convincing enough, Pfizer's trailing-12-month price-to-sales (P/S) ratio of 2.5 is considerably lower than the 10-year median of 3.9. Even factoring in a considerable drop in COVID revenue moving forward, that makes the stock a strong buy for income investors seeking value as well, in my opinion.
