Pfizer (PFE 1.02%) has been a company on a mission, looking to restock its pipeline with growth opportunities as its COVID-19 revenue declines this year and beyond. In the past year, it has completed multiple acquisitions, including clinical stage drugmaker Arena Pharmaceuticals and biopharmaceutical outfit Global Blood Therapeutics -- moves that should bolster Pfizer's sickle cell disease portfolio.
But one of the biggest steps it has made recently is its plan to acquire cancer specialist Seagen for a massive $43 billion. It's a potential game changer for the business, but that doesn't mean Pfizer's done with acquisitions just yet. Let's see what that could mean for investors.
Pfizer has turned to M&A to save the day
Pfizer is facing multiple headwinds as it will lose revenue from its COVID-19 vaccine and pill as the pandemic becomes less and less of a concern for the public. Some of its drugs are also losing patent protection, and as a result, their sales will fall due to rising competition from generics. Those are key reasons why Pfizer trades at a remarkably low 7 times earnings. Investors are simply worried about how strong the company's future will be once all the dust settles.
NYSE: PFE
Key Data Points
One way to improve a company's growth prospects is simply by acquiring other good businesses, which is what Pfizer has been doing over the past few years. It has been putting its cash and resources to work, with the Seagen deal being an exclamation mark on its pursuit of growth.
The company still hasn't reached its goal
In a recent interview with CNBC, CEO Albert Bourla said he wants to add about $25 billion in new revenue through mergers and acquisitions (M&A) by the end of the decade. Prior to the Seagen acquisition, Bourla said the company had already added about $10 billion, with Seagen alone adding another potential $10 billion in revenue for Pfizer. At $20 billion, Bourla confirmed that the company was at 80% of its goal, suggesting that the company isn't done looking for deals.
However, if the shortfall at this range is around $5 billion, that also tells investors that another acquisition on the scale of Seagen is unlikely. But with valuations falling in the bear market, there's a good chance that Pfizer can still add another quality business into the mix without having to break the bank.
Does this make Pfizer a better buy?
In the past 12 months, shares of Pfizer have fallen by 26%. Despite all of its wheeling and dealing, investors remain hesitant to buy the healthcare stock, perhaps because it is still too closely associated with COVID-19, and investors assume its outlook remains poor. Analysts do, however, see a fair amount of upside for Pfizer's stock, with the consensus analyst price target of over $50 being 24% higher than where the healthcare stock is trading at today.
In the long run, there could be even more potential for the business if it is able to hit its goal of adding $25 billion in new revenue through acquisitions. There's some risk here, but given the heavy discount and low multiple that Pfizer's stock is trading at, there's a good margin of safety for investors that makes the stock worth taking a chance on.
Pfizer has a strong track record for growth, and while it may have a tough year or two ahead, in the long term, it should remain a good investment. That's why buying the stock right now could prove to be a terrific move.
