A year ago, Pfizer (PFE 1.42%) was soundly beating the market, racking up highly impressive sales thanks to its COVID-19 products. But with the pandemic no longer a global health crisis per guidance from the World Health Organization (WHO), this market has become substantially less lucrative for the pharma giant.
That's why Pfizer's shares are already down by 21% year to date, even as broader equities roar back following a downturn. The market is forward-looking, so this may be a clue that Pfizer's prospects aren't all that appealing. Or perhaps, in this case, it isn't looking forward enough, and Pfizer is a steal at current levels.
Which is it? Let's dig in and find out.
NYSE: PFE
Key Data Points
Planning for a post-pandemic world
In January, Pfizer CEO Albert Bourla made a bold claim when he said the company was entering the most crucial stretch in its history. Bourla was referring to the 18-month period that will end mid-next year. He clearly did not mean that in terms of the company's financial results; Pfizer's sales in the first quarter declined by 29% year over year to $18.3 billion.
Bourla meant that Pfizer plans to earn an impressive 19 new approvals through next year, compared to the one or two brand-new products per year it usually launches. Right now, the drugmaker is going through a transition period during which its financial results will suffer. This often happens to pharmaceutical companies but under different circumstances, typically when dealing with patent cliffs that bring forth biosimilar competition.
That's what's happening to AbbVie after it recently started facing biosimilar challenges to its blockbuster immunology medicine, Humira. But Pfizer's case is different. Its revenue of $100.3 billion last year was an all-time best for the company thanks to its coronavirus portfolio. This market should stabilize once comparisons to the peak pandemic years cease. When that happens, Pfizer's revenue should start growing again.
In Q1, Pfizer's non-coronavirus revenue increased by a respectable 5% year over year operationally. It expects non-COVID revenue between $70 billion and $84 billion by 2030, which should lead to a top-line compound annual growth rate between 6% and 10% through then. Pfizer made that projection before its latest acquisition. On March 13, it announced it would buy out cancer specialist Seagen for $43 billion.
This should add $10 billion in risk-adjusted revenue in 2030, according to management. And perhaps even more importantly, Pfizer will inherit Seagen's rich oncology pipeline. As Bourla said: "We are not buying the golden eggs. We are acquiring the goose that is laying the golden eggs." So following a year or two of declining sales, Pfizer should be more than fine.
Two more reasons to consider the stock
The market's focus on Pfizer's near-term challenges is creating an excellent opportunity for investors to initiate a position while its shares are down. Pfizer's forward price-to-earnings (P/E) ratio is only 11.6 as of this writing. The average forward P/E for the broader pharmaceutical industry is 14.9, so Pfizer looks attractively valued by this popular metric.
PFE PE Ratio (Forward) data by YCharts.
In addition to its long-term growth potential and great value proposition, Pfizer is also an excellent dividend stock. The company's dividend yield of 4.09% is more than twice the average for the S&P 500. Pfizer habitually raises its dividends, with the company's payouts rising by almost 70% in the past decade. Furthermore, Pfizer's cash payout ratio is only 45%, so there is plenty of room for more dividend hikes.
Pfizer generated plenty of cash flow thanks to its success in the coronavirus market. Much of it went into funding acquisitions, but the company should continue to devote some of that cash to rewarding shareholders with payout increases. These factors make Pfizer a solid pick for income-seeking investors.
Pfizer is an excellent long-term play
Pfizer's stock could remain under pressure in the near term as its revenue continues to decline on a year-over-year basis. But investors with a time horizon of five years or more can safely buy the company's shares. Pfizer's top line will rebound and eventually start growing at a good clip again once comparisons to the best year it has ever had in terms of sales (last year) cease and as it adds new products to its portfolio.
That, combined with the drugmaker's solid dividend profile, makes the stock attractive, especially at current levels.
