Given its key role in the fight against COVID-19, the fact that Pfizer (PFE 0.55%) shares are down 56% from their 2021 peak isn't entirely surprising. Demand for its COVID-19 vaccine (Comirnaty) and its treatment (Paxlovid) soared during the pandemic's height. With the coronavirus contagion abating in the meantime, though, last year's sales fell 41%. Income fell more than 70% year over year. Yikes.
However, the stock's sellers have arguably overshot their target. Pfizer stock is not only now well undervalued, but it's now sporting a big dividend yield of 6.2% as well.
That's a well-funded dividend, by the way, that's been raised every year for the past 15 years.
Don't let the near-term noise distract you
The rapid rise and equally rapid fall of Pfizer stock makes sense. Circumstances in 2020 and 2021 were unusual to the point of being scary. Then in 2022, interest in combating the COVID-19 pandemic waned faster than the pandemic itself did. Investors were forced into making buying and selling decisions faster than they normally might.
The dust is finally settling, though. We can start making calls based on a company's plausible long-term prospects. And Pfizer's long-term prospects look pretty compelling.
Sure, Paxlovid's and Comirnaty's enormous revenue is in the past. But look forward. This is the same pharmaceutical company behind blood thinner Eliquis, pneumonia vaccine Prevnar, cancer-fighting Ibrance and Xtandi, and arthritis drug Xeljanz, just to name a few. All of these are blockbuster drugs (annual sales of more than $1 billion), and they're only a sampling of Pfizer's entire portfolio. To this end, excluding COVID-19-driven revenue, Pfizer's 2023 top line was actually up 7%.
Comparable growth is in the cards too. Analysts are calling for revenue growth of 2.5% this year, which is expected to accelerate to a growth pace of 4.6% next year. Earnings are apt to grow even more, from last year's $1.84 per share to $2.20 this year, and $2.74 per share in 2025.
It sounds like a lot ... and it is. But the drugmaker has been busy in recent years at the same time it's been addressing the COVID-19 pandemic. For instance, early last year Pfizer announced plans to launch 19 new drugs -- or at least new indications -- within the following 18 months that will generate $20 billion worth of annual revenue by 2030. It's on track to reach that goal too, with last year's debut of RSV vaccine Abrysvo, the recent expansion of Elrexfio's approval label to include multiple myeloma, and more.
Near the end of this year, look for Pfizer to begin a deeper integration of recently acquired Seagen, which bolsters the pharmaceutical giant's oncology portfolio. The company believes the addition of Seagen's drugs could add more than $10 billion per year to the top line by 2030.
Beyond that, know that Pfizer's current pipeline includes 112 different trials, 31 of which are in the third and final phase of their testing, and six of which are already being reviewed by regulators for potential approval.
This is a prime opportunity to step into Pfizer stock
So why isn't any of this being reflected in the price of Pfizer stock? Good question. But it would be naïve to ignore the dynamic resulting from the COVID-19 pandemic. It put a white-hot bullish spotlight on the company. Investors weren't quite sure how to value the stock while the spotlight was dimming, and they were even less certain once that light finally faded. It's now been a few years since COVID-related products weren't the focal point of discussions about Pfizer's results.
That ensuing correction does appear to have finally run its full course, however, and then some. Shares are trading at less than 15 times their trailing earnings, and less than 10 times next year's projected per-share profits. Both measures are unusually low, even for a slow-growth behemoth like Pfizer. For perspective, the S&P 500's trailing and forward-looking price-to-earnings ratios are both above 20 at this time. The index's dividend yield is also a modest 1.4%, versus Pfizer's 6.2%.
Connect the dots -- there's a clear value-based argument to be made for owning a piece of the pharmaceutical company. The argument for owning Pfizer for the long haul -- maybe even forever -- is even stronger.
This is a company that's been around for 175 years. Its executives collectively have decades of experience in the drug business. And, Pfizer itself has the financial wherewithal to either develop or buy the new products it needs to replace its aging ones. Remember, this is the same company many investors feared would struggle to get past the expiration of its patent on cholesterol-fighting Lipitor in 2011, and then the loss of patent protection on Viagra in 2017. Yet, here we are talking about Eliquis, Elrexfio, and the potential of the Seagen acquisition.
A position in Pfizer is never going to be as rewarding as a stake in, say, Nvidia or Amazon. The pharmaceutical business just doesn't move that fast, particularly for bigger players like Pfizer.
What Pfizer lacks in speed, it more than makes up for in longevity. Right now, it more than makes up for its slower growth pace with an incredible dividend yield. Income-seeking investors won't want to miss this boat.
