It's been a challenging time recently for Pfizer (PFE 0.74%). The pharmaceutical giant has seen its shares plummet 18% this year -- and they are trading only slightly higher than their 52-week low.
The market appears to accept as a foregone conclusion that the company's revenue will drop sharply because of the receding pandemic. Sales of Comirnaty, its COVID-19 vaccine, are expected to decline 64% this year, and Paxlovid, its COVID-19 therapy, is expected to see revenue fall 58%.
It's hard to disagree with that concern, particularly as those numbers were from the company's own guidance. At the same time, Pfizer has set itself up for long-term success via its huge pipeline. Just so far this year, the company has seen two Food and Drug Administration (FDA) approvals and an emergency use authorization (EUA) for its COVID-19 booster vaccine.
I believe the shares -- trading at roughly 7 times earnings -- are too good to pass up, considering the potential of Pfizer's pipeline and its strong dividend. At some point, investors will realize the stock is underpriced. Here are three reasons to buy this stock.
1. Record earnings set it up for long-term success
Pfizer reported record revenue of $100.3 billion in 2022, up 23%, and if you discount 2021 and 2022 revenue from Comirnaty and Paxlovid, revenue was still up 2%. The company reported 2022 earnings per share (EPS) of $5.47, up 42%.
It's interesting to note that the company's fourth quarter results were still going pretty strong. Revenue totaled $24.2 billion, up 2% year over year, and EPS gained 48% to $0.87.
What is Pfizer doing with all that money? Well, besides dividends and stock buybacks, it spent $11.4 billion on research and development in 2022. The company could launch as many as 19 new therapies over the next 18 months, worth an additional $20 billion in annual revenue by 2030. The company has 110 projects in its burgeoning pipeline.
The company's oncology portfolio is particularly impressive. The company already has 16 cancer therapies that produced a total of $12.1 billion in revenue last year, led by breast cancer therapy Ibrance, with $1.3 billion.
There are other areas that should pay off as well. The company got FDA approval on March 10 for its migraine nasal spray, Zavzpret (zavegepant). Combined with its migraine preventative, Nurtec ODT, the company sees $6 billion in peak sales for its migraine franchise. In February, the company received FDA approval to expand the indication for atopic dermatitis medicine Cibinqo (abrocitinib) to include adolescents, ages 12 to 18. The therapy is already approved for adults.
A few other key approvals could soon be on the way. On April 4, the FDA accepted the company's supplemental new drug application (NDA) for the combination of Braftovi and Mektovi to treat patients with metastatic non-small cell lung cancer (NSCLC) with a BRAF V600E mutation, as discovered by an FDA-approved test. The PDUFA date is scheduled for the fourth quarter of 2023.
Pfizer's respiratory syncytial virus (RSV) vaccine for adults 60 and older got the OK on Feb. 28 from an FDA advisory committee, with a PDUFA date set for May. And on Feb. 22, both European Medcines Agency and FDA accepted the biologics license application (BLA) for elranatamab to treat multiple myeloma therapy, a blood cancer that affects plasma cells in the bone marrow. The FDA's decision is expected sometime in 2023.
NYSE: PFE
Key Data Points
2. It is willing to spend for future growth
Pfizer has also spent big on mergers and acquisitions. Besides its $43 billion ongoing merger deal with Seagen (SGEN +0.00%), a biotech company that specializes in oncology therapies, Pfizer bought Biohaven Pharmaceuticals for $12.7 billion, Arena Pharmaceuticals for $6.4 billion, and $5.6 billion for Global Blood Therapeutics.
The company's merger with Seagen would double Pfizer's early-stage cancer clinical pipeline. CEO Albert Bourla said Seagen's use of antibody drug conjugates opens another avenue for developing oncology therapies. Pfizer expects $2 billion in revenue this year from Seagen, with its four approved therapies, collaboration revenue, and royalties. However, that number will grow to $10 billion in risk-adjusted revenues annually by 2030, Pfizer predicts.
Bourla said the company plans to spend an additional $25 billion on acquisitions by the end of the decade.
3. Pfizer's dividend will pay off your patience
Pfizer just raised its quarterly dividend by 2.5% to $0.41, the 12th consecutive year it has increased its dividend. With the stock's decline, the yield has grown to around 3.93%, more than double the S&P 500 average of 1.74%. The payout ratio is only about 28%, so there's little chance of the dividend being cut.
Over the past decade, the company has grown its dividend by 71%. With some analysts saying that Pfizer will again return to growth by 2024, the dividend should make up for any short-term stock hiccups in the meantime.
