Pfizer (PFE +0.95%) is a stock that everyone's familiar with, but that doesn't mean that everyone agrees you should buy it. While its promise of steady returns and a decent dividend might be alluring, investors need to understand the questions surrounding its future pace of growth if they're considering a purchase.
With that being said, here's a pair of perspectives on the stock, one from the bulls, and one from the bears. The one thing both arguments agree on is that the company's future won't look like its recent past.
NYSE: PFE
Key Data Points
Bull case: A growth plan and attractive valuation
The bull thesis for Pfizer rests on its ambitious strategic plan to grow its annual revenue to $84 billion by 2030 via a combination of launching new drugs and buying assets or making acquisitions. The company believes the products it expects to launch in the coming months could generate $20 billion in annual sales by the end of the decade. That's in addition to the $25 billion in additional revenue it expects to bring in via business development deals.
Pfizer is already taking steps to translate the plan into reality by buying Seagen for a total consideration of $43 billion to gobble up its oncology portfolio. Likewise, its 10 programs awaiting regulatory review and its 23 phase 3 candidates mean that it is reasonable to expect multiple new drug launches per year, each of which might catalyze the stock to rise in addition to rendering more sales.
Bulls also recognize that the stock's valuation is especially favorable at the moment, which could provide a significant tailwind for those who invest in it now. Its price-to-earnings (P/E) ratio is only 9, far below the market's average P/E of 25. If its multitude of new product launches convinces the market that the company is going to add to its top line faster than its plan entails, the valuation might even expand, which would be another major tailwind.
Bear case: Disappointing returns and weak near-term outlook
Whereas bulls see plenty of drivers for Pfizer's success through 2030, bears aren't convinced that the strategic plan will lead to better-than-average returns for their investment. In short, even with the benefit of a steep run-up in its shares during the pandemic as the company won the coronavirus vaccine race and commercialized an antiviral therapy, the stock's total return is only up by 2% in the last five years, badly underperforming the market's growth of 68%. Nor did the stock beat the market over a 10- or even a 20-year period.
It's true that past performance doesn't predict future returns. But consider that over the last 10 years, its trailing 12-month revenue, which is now at $78 billion, only grew by 50%. If the big plan ends up working as advertised, the top line in 2030 will be only $3 billion larger than in 2021, having grown at a compound annual rate of a mere 10% from 2025 onward. That pace is unlikely to drive much in the way of share price appreciation.
Then there is the matter of the short term. Wall Street analysts anticipate that Pfizer's sales for 2023 will be around $62 billion, and their estimate for 2024 is practically the same. There's also a risk that its coronavirus product revenue collapses even faster than anticipated despite the pandemic's stickiness, and there aren't really any unexpected upsides to look forward to soon. Thus, in the view of the bears, the stock's cheap valuation makes perfect sense as it implies that there won't be much in the way of growth in the near future.
What's the best move?
The bears are probably correct that Pfizer's stock will not be a winner over the next few years. After that period, however, it is possible that sentiment about it will improve as it makes more acquisitions and its pipeline has time to produce high-earning medicines. It isn't reasonable to expect its shares to beat the market even then, as growth will still be relatively slow, and it'll never approach the heights of 2021 until well past the end of the decade.
Nonetheless, Pfizer will almost certainly continue to have more than enough money to pay and increase the size of its dividend, which currently has an attractive forward yield of nearly 5%. So while bulls might be disappointed with its stock price performance, it's still feasible to build up a decent passive income stream at a bargain by buying shares of Pfizer and holding them over the long-term.
