Pfizer (PFE +0.97%) has been a losing play for investors over the past 12 months. To wit: The drugmaker's stock has fallen by a whopping 28.8% over this period. Part of that decline has been driven by the anticipated drops in sales for its COVID-19 vaccine Comirnaty and the antiviral treatment Paxlovid. However, an underappreciated issue is that investors haven't been viewing Pfizer as a so-called "oasis stock."
Since the start of 2023, investors have shown a magnetic attraction to a select group of companies such as Eli Lilly (LLY +1.26%), Crispr Therapeutics, Microsoft, and Nvidia, causing their shares to dramatically outperform the broader market. The unifying theme across these high-performance stocks has been a connection to some form of exciting new technology like artificial intelligence, gene editing, or weight-loss treatments.
Pfizer may soon join this group. Here's why.
An overlooked pipeline asset
Though the company has gone on a $70 billion business development spending spree over the last few years, Pfizer has of late failed to impress Wall Street. Underscoring this point, the drugmaker's stock presently trades at an eye-popping forward-looking earnings yield of 9.2%. That's significantly undervalued relative to big pharma stocks as a class (average earnings yield of 7%), as well as to a risk-free asset such as the 10-year U.S. Treasury bond (current yield: 3.73%).
NYSE: PFE
Key Data Points
The long and short of it is that investors simply haven't bought into Pfizer's deep value proposition, which is centered around the possibility of the company becoming a juggernaut in immunology, rare blood disorders, and cancer treatment by decade's end. However, one set of clinical assets may change this situation soon by getting the market's attention: the oral glucagon-like peptide-1 receptor (GLP-1) agonists danuglipron and lotiglipron.
Danuglipron recently posted stellar results in a mid-stage trial as a dual treatment for blood sugar control and weight loss in type 2 diabetics. However, the pharma giant is patiently waiting on lotiglipron's forthcoming mid-stage trial data before deciding which candidate to advance into phase 3 testing.
What's the big deal? Shares of Eli Lilly and Novo Nordisk have been on multiyear bull runs thanks largely to their GLP-1 drugs -- tirzepatide and semaglutide, respectively. These two groundbreaking medications are expected to eventually haul in close to $100 billion a year in sales as a result of the ever-rising rates of both diabetes and obesity around the globe.
Pfizer, for its part, is coming a bit late to the GLP-1 game. But its oral offerings might be able to compete effectively against tirzepatide and semaglutide -- both of which are administered via injection -- once everything is said and done.
What is Pfizer's upside potential?
Immediately after Pfizer published danuglipron's impressive mid-stage trial data, financial services firm Cantor Fitzgerald reaffirmed its $75 a share price target on the drugmaker's stock. That target is approximately 94% higher than the stock's current price.
Meanwhile, most of the other firms covering Pfizer demurred on the issue, often citing the need to see phase 3 data from one of these GLP-1 candidates before revising their fair value estimates. This conservative take isn't unwarranted given that mid-stage data frequently don't predict late-stage trial results, not to mention the fact that tirzepatide and semaglutide may become entrenched competitors by the time Pfizer is ready to enter the GLP-1 market.
What does this all mean? Pfizer potentially sports a pipeline asset for type 2 diabetes/weight loss that is wholly underappreciated by the market. In all likelihood, the drugmaker will have late-stage trial data on either danuglipron or lotiglipron ready to present by 2025, putting its candidate on track for a commercial launch in 2026.
The bottom line is that if Pfizer is able to develop a clinically superior GLP-1 asset relative to either of the current market share leaders, it could have one of the best-selling drugs of all time on its hands. In that case, Cantor Fitzgerald's Street-high price target -- while perhaps premature -- might not look so outlandish in, say, three years. Aggressive investors might want to take a flier on this top big pharma stock soon.
