Over the past decade, pharmaceutical maker Pfizer (PFE -0.12%) has severely lagged the market. Dividends reinvested aside, the stock is in the red over this period, while the S&P 500 is up by almost 230%.
Now for the good news: Although Pfizer has encountered some issues, the company is quietly setting up a solid foundation. And investors who get in on the act now might be handsomely rewarded down the road.
Slowly, but surely, overcoming challenges
Pfizer has dealt with several headwinds in the past few years. Here are three of the biggest. First, the company failed to keep up the torrid pace of revenue and earnings growth it had during the early pandemic years. Having developed one of the leading coronavirus vaccines on the market, the drugmaker benefited immensely. But that tailwind has since evaporated.
Second, Pfizer will experience some patent cliffs in the next few years, including that of its anticoagulant Eliquis, one of its best-selling therapies. Third, this year, Pfizer faced the threat of tariffs, like many other corporations.
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The first two problems have more or less the same solution: Develop newer medicines that will jump-start top-line growth. Pfizer has been doing so. Over the past few years, it has launched Abrysvo, a vaccine for the respiratory syncytial virus, Litfulo, a treatment for alopecia areata, and several others. These medicines are still not making massive contributions to the company's results, but give them a little more time and the opportunity to grab some label expansions, and that could change.
More importantly, Pfizer has significantly expanded its pipeline in recent years, and the results of that work have yet to filter down to its financial results. Over the next few years, Pfizer is well-equipped to launch several new products that should help it turn things around. The company's most recently announced acquisition looks particularly promising. Pfizer is buying out Metsera, a biotech company that specializes in developing weight management medicines, for about $5 billion.
Metsera released data from a phase 2 clinical trial for its leading GLP-1 candidate a couple of weeks ago, and it seemed very promising. The medicine in question, MET-097i, not only demonstrated competitive efficacy as a long-acting option that could be administered once a month (versus once weekly for current weight loss drugs), but also seems to have a significantly better tolerability profile compared to the industry leaders. Pfizer, through Metsera, could carve out a niche in the fast-growing weight management market.
In addition to developing new products, Pfizer has been materially decreasing expenses and plans to continue doing so until 2027. So, Pfizer is addressing the challenges that have led to weak financial results in recent quarters. And the pharmaceutical leader just announced a deal with the White House that should help it get around tariffs.
Pfizer will be exempt from tariffs on the industry for three years in exchange for investing in its local manufacturing efforts and selling some medicines at a deep discount in the U.S. That's another problem Pfizer is successfully getting around.
Too cheap to ignore
Pfizer's share price is currently lower than it was 10 years ago. And even more to the point, the company's forward price-to-earnings of 7.8 is about as low as it has been at any point over the past decade, and is much lower than the healthcare industry average of 17.3.
The market is factoring in the roadblocks it has faced, but in my view, it is underestimating Pfizer's rebuilding efforts. And there are other perks associated with investing in the company, notably its dividend. Pfizer's woes on the market have pushed its forward yield to a juicy 6.9%, whereas the average for the S&P 500 is a meager 1.2%. Pfizer consistently increases its dividend, having done so by 62% over the past decade.
With Pfizer's strong dividend program, deep pipeline, tariff exemptions, and attractive valuation, the stock seems like a steal for investors seeking a reliable dividend payer to hold onto for a long time.
