Pfizer (NYSE: PFE) has become a household name around the world over the past eighteen months, thanks to its first COVID vaccines on the market. Its stock price has risen 38% since the start of the year, and in this article we take a look at whether it is a good investment.
Pfizer has a much higher market value than its major competitors, but its share price is below Novartis (NYSE: NVS), Merck (NYSE: MRK), Bristol Myers Squibb (NYSE: BMY), Novo Nordisk (NYSE: NVO), Eli lilly (NYSE: LLY), and Amgen (NASDAQ: AMGN).
What does Pfizer do?
Founded in 1849, Pfizer is a global biopharmaceutical company. It is research-based and engages in the full spectrum of drug discovery, development, manufacture, marketing, sale and distribution.
It operates in both developed and emerging markets, with the aim of finding cures for some of the world’s most devastating health problems. But more than 51% of Pfizer’s revenue exposure comes from the United States.
Prior to 2020, Pfizer was best known for launching Viagra (and often featured prominently in spam emails). But since the COVID-19 pandemic struck, Pfizer has become synonymous with its vaccine.
It may well become his crowning achievement, but that’s not all. Indeed, Pfizer has 99 drugs in its pipeline.
In addition, Pfizer produces countless drugs, vaccines, medical devices and consumer health products for cardiovascular disease, diabetes, oncology, inflammation, and more.
Is Pfizer a good or a bad investment?
We will now look at some metrics that can give us a clearer picture of Pfizer’s current financial condition.
Pfizer’s revenue growth has fallen over the past decade. It started to increase between 2016 and 2018 but has since fallen back.
Declining sales may indicate a decrease in demand for the products. Is this the case with Pfizer?
COVID-19 has decimated sales of part of its business. But why were sales declining before the pandemic arrived?
There were several reasons for this. Some of its best-selling products have seen the end of their period of commercial exclusivity; this amounted to $ 1.7 billion in lost revenue in 2018. For example, the cholesterol drug Lipitor and other bestsellers have come to expect a negative impact from generic competition. . Additionally, pain medication Lyrica faced a drop in revenues as its US patent expired.
Then there was the resignation of CEO Ian Read, who had been in office for eight years. His successor Albert Bourla is the current CEO of Pfizer.
Pfizer has also undergone political intervention. After raising the prices of 40 prescription drugs, President Trump has publicly named and shamed the company on Twitter. Following an appeal with the president, Pfizer postponed its decision to increase prices.
All this uncertainty combined with additional legislative and regulatory concerns has caused Pfizer shareholders to lose confidence.
But since the start of the year, things have improved and sales are increasing again. Pfizer has raised its guidance for FY21 and expects revenue to be between $ 81 billion and $ 82 billion, with adjusted EPS of between $ 4.13 and $ 4.18.
Pfizer’s gross revenue improved significantly in the first half of 2021 after a dismal 2020.
The company’s operating profit margin increased between the end of 2016 and August 2018, but has since declined.
While Pfizer’s profit margin before interest and taxes (EBIT) has declined in recent years, it has consistently remained above 25% over the past decade (until COVID hit). It’s a reassuring sign of a good deal.
Pfizer’s asset turnover rate has averaged 0.3 over the past ten years, indicating that it is not good at using its assets to generate income. However, in a company with significant R&D expenses, this is not too much of a concern.
Pfizer’s liquidity is not that great. Its current ratio has averaged 1.3 over the past five years. Above 1.5 would be safer, but it’s not at a worrying level.
Besides a particularly impressive peak in 2017, the percentage change in diluted EPS has been negative for most of the past decade.
Pfizer’s price-to-earnings ratio estimate for the next twelve months is 12 (with a 5-year average of 19).
For long-term holders of Pfizer shares, returns have been greatly enhanced by its dividend.
Indeed, Pfizer has been increasing its dividend for five years. It currently offers a 3% return.
What does Pfizer have in the pipeline?
The second quarter results exceeded analysts’ expectations for GAAP EPS and COVID-19 vaccine sales. Excluding the vaccine from the equation, revenue grew 10% year-on-year. Still, as 2020 has been a difficult year for the company, the comparisons should impress this year.
Pfizer’s recent third-quarter earnings beat analysts’ estimates for revenue and earnings per share (EPS). It saw 130% year-over-year operating revenue growth and raised the company’s total forecast for 2021 for both revenue and adjusted EPS.
EPS of $ 1.34 topped consensus estimates of $ 1.08 by 24%. And sales soared 134% to $ 24 billion.
Expiring patents continue to cause concern, but it also has several exciting drugs in the pipeline and continued revenue from COVID-19 vaccines.
Some of Pfizer’s best performing drugs include Vyndamax, Prevnar 13, Xeljanz, Eliquis, Ibrance, Inlyta, Xtandi, and various biosimilars.
Sales are on the rise again, with an impressive 88% year-over-year growth in biosimilars in the second quarter. This was mainly thanks to its new line of oncology drugs Ruxience, Trazimera, and Zirabev.
Another exciting new drug in Pfizer’s pipeline is a Lyme disease vaccine. It is the only active candidate vaccine against Lyme disease currently in clinical development, co-developed with a French biotechnology company. Valneva (NASDAQ: VALN). Tick-borne disease is on the rise in the United States and Europe, with cases in the United States having nearly doubled since 1991.
As of December 2020, Pfizer was actively pursuing 27 Phase I trials, 35 Phase II trials, and 24 Phase III trials. He also had 17 pre-recorded products.
Over the years, Pfizer has invested heavily in R&D, which has largely paid off with such successes as the cholesterol drug. Lipitor, anti-inflammatory Feldene, and antidepressant Zoloft.
Through mergers and acquisitions in recent years, Pfizer has significantly diversified its product offerings.
In the past year, Pfizer initiated three acquisitions; Arixa Pharmaceuticals, Amplyx Pharmaceuticals and Trillium Therapeutics, as well as the sale of Wuxi Biologics.
In addition to its extensive drug pipeline, Pfizer also generates revenue from its COVID-19 vaccines with its partner BioNTech (NASDAQ: BNTX). The approval of the booster injections is underway, as is the approval of its COVID-19 pill.
Pfizer’s COVID-19 vaccine was also recently approved for children. The company supplies in several regions, including the United States and Europe.
What can go wrong?
When considering investing in a business for the long term, it is important to consider what could go wrong. Some issues are beyond the control of investors, but it is wise to be prepared for any eventuality.
One of the biggest dangers of investing in healthcare is when a trial doesn’t get the results you expect, or worse, the trial causes damage.
Pfizer is somewhat of an advantage here as it has several trials going on at all times. This means that he has high hopes of maintaining the momentum of the share price.
When a small or micro-capitalization is on trial, the future of its entire business may depend on its success. This is not a problem Pfizer faces.
Nonetheless, we should always consider worst case scenarios, such as death or severe affliction. In addition, delays in starting or approving trials can also cause a brief disruption in stock prices.
Another big issue facing multi-billion dollar conglomerates is litigation, activism, or regulatory scrutiny. Any of these problems can hurt a company’s stock price in the short term.
As already mentioned, Pfizer is also facing increasing competition and price compression due to the rise of generics and biosimilars.
Where is the value?
Although product sales fell in 2020, the total value of contracts sold by Pfizer has increased year over year over the past seven years.
M&A activity continues
Pfizer has a strong balance sheet
A vast pipeline of best-selling drugs
Decent dividend yield of 3%
Low P / E ratio
Where does the Pfizer share price go next?
Financial markets are in flux and many expect a bearish turn to continue in the meantime. However, Pfizer has many promising projects underway, a strong M&A strategy, a decent dividend, and a strong balance sheet. Additionally, the pandemic has started a fire in the healthcare sector, so progress here should be actively encouraged in the years to come.
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