Pharmaceutical giant Pfizer (PFE 0.55%) went through a growth spurt during the COVID-19 pandemic as one of the leading vaccine companies. But the windfall of billions of extra dollars in revenue and profits has gone as quickly as it came.
Today, Pfizer stands roughly where it did before COVID-19 and shares trade at their lowest levels since the initial pandemic market crash in 2020. Is the stock a long-term buy after recently completing a blockbuster $43 billion acquisition?
Here is what investors need to know.
A round-trip to pandemic lows
Pfizer's business peaked in 2022, cracking $100 billion in global sales that year. Approximately $56.7 billion came from COVID-19 products Comirnaty (vaccine) and Paxlovid (oral tablet). Understandably, those revenues are drying up as the world moves past COVID-19. You can see below that while revenue still falls, Pfizer's free cash flow has fully retraced to pre-vaccine times.
The company's financials will continue to decline this year. Management is guiding for sales between $58.5 billion and $61.5 billion, and earnings per share between $2.05 and $2.25. These numbers include contributions from recently acquired Seagen (more on that soon). Comirnaty and Paxlovid sales are expected to come in around $8 billion, showing how fast that business dried up over the past 18 months.
Looking to the future
Pfizer is emerging out of this unusual four-year stretch. It had to invest in developing and manufacturing COVID-19 products that quickly became more than half its business, then immediately fell off a cliff. That could take some time, but management is taking action. Pfizer is working on cutting costs to save $3.5 billion annually, trimming $1 billion in 2023 and $2.5 billion this year.
Its non-COVID-19 business is also showing some life. Third-quarter revenue grew 10% year over year in Q3 (excluding COVID-19 products). It also used those vaccine profits, spending $43 billion to acquire Seagen, a pharmaceutical company with a pipeline focused on cancer treatments.
Pfizer's 2024 guidance calls for 3% to 5% revenue growth (excluding Seagen and COVID-19 products). Adding in Seagen brings the expected 2024 revenue growth to between 8% and 10%. But Pfizer's earnings growth outlook could be a bit more murky. Management expects Seagen's business will be accretive to earnings by the third or fourth full year post-close. That's 2027 or 2028.
The company's bottom line is a cloudy picture at the moment. Cost savings programs and organic growth could take a couple of years to offset declining COVID-19 sales and move Pfizer's earnings in the right direction.
Is Pfizer stock a buy?
Analysts are taking a cautious approach. Consensus long-term estimates call for earnings to decline at a low-single-digit rate, which will probably impact the market's sentiment toward the stock.
Looking ahead and using management's 2024 guidance, the stock trades at a price-to-earnings ratio (P/E) of 14.
Buying shares at that valuation looks like a tough case to make. Pfizer has over $63 billion in debt after closing the Seagen acquisition and pays a dividend that has exceeded its cash flow over the past year. Management has confidence in the dividend's sustainability, given it recently issued a 2.4% payout increase. Still, it shows that Pfizer doesn't have a lot of financial breathing room at the moment.
PFE EPS LT Growth Estimates data by YCharts
Pfizer could be in a much better position three years from now, but asking investors to buy today and take that leap of faith isn't so simple. Investing is about weighing the present opportunity against what else is out there. There are more attractive stock ideas for investors looking to bolster their pharmaceutical holdings.
