Pfizer (PFE 0.81%) had a disastrous 2023, with its share price collapsing by 44%. It was one of the S&P 500's worst-performing stocks last year. The company's COVID-19 revenue nosedived as the demand for vaccinations waned, and the drugmaker can no longer count on that being a strong growth driver for the business.
But with such a beaten-down valuation and Pfizer back to trading at 2020 levels, has the stock become too cheap of an investment to pass up? Is it only a matter of time before its shares rally again? What will happen this year?
NYSE: PFE
Key Data Points
Why Pfizer's stock could rally in 2024
The big reason Pfizer's stock could do well this year is its valuation. After such a bad showing in 2023, there's a possibility that the markets and investors were overly punitive on the stock and overreacted to the company's struggles. After all, a slowdown in revenue was expected as concerns related to the pandemic subsided.
Today, the shares trade at just 13 times the drugmaker's estimated future earnings. That's based on analysts' expectations of the company's earnings in the year ahead; they aren't based on trailing earnings and the inflated profits Pfizer benefited from thanks to higher COVID-19-related revenue. Gauging by its projected future profits, shares trade at a sizable discount; the average healthcare stock has a forward earnings multiple of 21.
Investors are heavily discounting Pfizer's stock. But even Wall Street sees some promising upside. According to the consensus analyst price target of just under $40, shares of Pfizer could rise by more than 35% from where they trade today. Price targets usually project where a stock could go in the short term (typically a year or so). In the long run, there could be more upside for Pfizer.
Why Pfizer's stock could struggle this year
While Pfizer's shares look undervalued, there is still the risk that they could underperform in 2024. When the company released its guidance last month, it projected revenue between $58.5 billion and $61.5 billion for this year -- comparable to what it expects to generate in 2023. That includes the benefit from the drugmaker's recent acquisition of Seagen and also factors in $8 billion in COVID-19-related revenue.
The danger is that the company could overestimate COVID-19 revenue, which could lead to an underwhelming revenue result for 2024. Sales of Comirnaty are down 78% year over year through the first nine months of 2023, and predicting how strong that figure will be this year could prove to be difficult. If Pfizer undershoots its forecast, that might give investors a reason to be even more bearish on the stock.
A further wrinkle is the drugmaker's flurry of acquisitions. Pfizer has bought multiple companies within the past few years, including Seagen. And those acquisitions add costs and redundancies, which can take time to eliminate. In its most recent quarter, which ended on Sept. 30, Pfizer posted a net loss of $2.4 billion (including a $5.6 billion non-cash charge related to inventory write-offs and other costs for Comirnaty and Paxlovid).
While the company's bottom line should improve, if acquisitions-related expenses weigh down the business too much this year, that could make the stock ripe for another sell-off.
Should you invest in Pfizer's stock?
I don't expect a huge turnaround for Pfizer's stock this year because of the obstacles it faces in growth and profitability. If it does rally, it'll likely be a modest rebound for the healthcare giant.
If, however, you're willing to buy and hold shares for the long haul, Pfizer can still be a good stock to own as the company rebuilds its business over the long term -- just don't expect any huge gains this year.
