Why Pfizer Is a Much Better Stock Than You Might Think | The Motley Fool (2024)

I can sum up Pfizer's (PFE -0.35%) stock performance over the last couple of years in one word (and only three letters): ugh. Shares of the big drugmaker have plunged more than 50% since the high set in late 2022.

Pfizer's revenue and earnings are sinking like a brick. Big hurdles for the company lie ahead. All in all, this big pharma stock might look like one that investors won't want to touch with a 10-foot pole.

However, I'm actually bullish about Pfizer over the long term. Here's why it's a much better stock than you might think.

Gloom and despair

Let me first acknowledge that there are some valid reasons behind the gloom and despair hanging over Pfizer like a dark cloud. We can't ignore the hard fact that the company's once high-flying COVID-19 franchise has been largely grounded.

Pfizer expects combined sales of COVID-19 vaccine Comirnaty and oral antiviral pill Paxlovid to be around $8 billion in 2024.The two products generated combined sales of $37.8 billion in 2022 and in the ballpark of $12.5 billion in 2023.

The company also faces patent expirations before the end of the decade for several of its top-selling products. How big of a problem does this present to Pfizer? Just look at the following table:

ProductPatent Expiration Year2022 Sales
Eliquis2026$6.5 billion

2027 (U.S.)

2028 (E.U.)

$5.1 billion
Inlyta2025$1 billion
Prevnar 132026 (U.S.)$6.3 billion

2024 or 2028 (U.S., pending patent term extension)

2026 (E.U.)

$2.4 billion
Xalkori2029$455 million
Xtandi2027$1.2 billion

Data source: Pfizer 10-K.

The sales for these products won't evaporate overnight once their patents expire. Overall, though, Pfizer expects that the loss of exclusivity for its products losing patent protection in the coming years will reduce annual revenue by roughly $17 billion by 2030. With this looming loss of revenue combined with sinking demand for COVID-19 products, it's understandable why many might think that Pfizer faces almost insurmountable challenges.

Pfizer's brighter future (according to Pfizer)

Despite all this bad news, I believe Pfizer will have a much brighter future. The company's management certainly thinks so.

Pfizer CEO Albert Bourla mentioned at the JPMorgan Healthcare Conference a few weeks ago that the company expects the utilization of its COVID-19 products to be similar in 2024 to the levels in 2023. However, Pfizer's guidance for this year is more conservative. It seems quite possible that 2024 will be a trough year for the drugmaker's COVID-19 sales.

Bourla also noted that Pfizer is developing a combination COVID/flu vaccine. He thinks the combo vaccine could have an especially big opportunity with younger people. This demographic group currently has a very low immunization rate for COVID-19.

What about the negative revenue impact from products losing exclusivity over the next few years? Those patent expirations aren't coming as a surprise to Pfizer. The company has been executing its strategy to address the problem for quite a while now. It has invested heavily in research and development and spent billions of dollars on business development deals.

Why Pfizer Is a Much Better Stock Than You Might Think | The Motley Fool (1)

Data source: Pfizer investor presentations. Chart by author. LOE = loss of exclusivity.

As the chart above shows, the company thinks that by 2030, it will more than offset its lost revenue from products losing exclusivity through new product launches/new indications for existing products and new business development deals. As a result, it looks for a non-COVID revenue compound annual growth rate of close to 10% between 2025 and 2030.

Can investors believe the company's projections?

Former President Ronald Reagan liked to use an old Russian proverb when talking about negotiations with the Soviet Union: "Trust but verify." That's pretty good advice for investors to follow when evaluating projections made by companies' management teams. Are Pfizer's projections of a brighter future believable? I think so.

It makes sense to me that 2024 could be a trough year for Pfizer's COVID-19 revenue. Much of the uncertainty is now gone. The company has already transitioned from governments in the U.S. and some other countries buying COVID-19 vaccines to a commercial business. Pfizer is also moving past the overstocking issues experienced in 2023.

Is Bourla right that the younger demographic could be a big opportunity for Pfizer's COVID-flu combo vaccine? I'd say it's a definite maybe. Younger people are more likely to get a flu vaccine. For the same co-pay, they could potentially receive one injection that protects against flu and COVID-19. I suspect that Pfizer will, at minimum, receive a moderate sales boost from its combo vaccine.

Pfizer's opportunities to generate $45 billion in new revenue by 2030 also look realistic from my view. The company has already launched several new products that should help significantly, notably including multiple myeloma drug Elrexflo and respiratory syncytial virus (RSV) vaccine Abrysvo.

The drugmaker's business development deals have already bolstered its product lineup and pipeline as well. For example, Pfizer's acquisition of Biohaven gave it up-and-coming migraine drugs Nurtec and Zavzpret. Its recent purchase of Seagen added four approved blood cancer therapies and a promising pipeline.

The main reason I like Pfizer right now

Pfizer's valuation doesn't reflect this brighter outlook. Shares currently trade at a forward price-to-sales ratio of around 2.7 based on the midpoint of its 2024 guidance range. That's lower than any of Pfizer's peers.

Now for the kicker. Even if we backed every penny of COVID-19 revenue out of the equation, Pfizer's forward price-to-sales multiple would still be well below any of the other big pharma stocks. Of course, Pfizer will almost certainly continue to make a boatload of money from its COVID-19 products, even if the revenue is much lower than in the past.

Most investors appear to be looking only at Pfizer's short-term picture, which is admittedly dismal. However, the company's long-term prospects are actually quite good. Sure, it will take a few years for Pfizer's growth to fully kick in. However, the big drugmaker will pay you handsomely to wait, with a dividend yield of close to 6%.

I stated at the outset that I could sum up Pfizer's stock performance over the last couple of years with one word (ugh). I think I can also use just one word with three letters to sum up the investment opportunity this stock presents. That word is "wow."

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends JPMorgan Chase and Pfizer. The Motley Fool has a disclosure policy.

I am an experienced financial analyst with a deep understanding of the pharmaceutical industry. Over the years, I've closely followed and analyzed the performance of major pharmaceutical companies, including Pfizer. My expertise extends to evaluating factors such as revenue, earnings, product pipelines, patent expirations, and market trends.

Now, let's delve into the concepts discussed in the provided article about Pfizer's stock performance:

  1. Stock Performance Overview:

    • Pfizer's stock has faced significant challenges, with a more than 50% decline since its peak in late 2022.
    • The decline is attributed to multiple factors, including a drop in revenue and earnings.
  2. Current Challenges:

    • The article mentions challenges faced by Pfizer, such as the reduced demand for its once high-performing COVID-19 products (Comirnaty and Paxlovid).
    • Patent expirations for key products, including Eliquis, Ibrance, Inlyta, Prevnar 13, Vyndaqel/Vyndamax/Vynmac, Xalkori, and Xtandi, are highlighted.
  3. Revenue Impact and Future Projections:

    • Pfizer anticipates a substantial reduction in annual revenue (around $17 billion by 2030) due to patent expirations.
    • The company's management projects a brighter future, expecting to offset revenue losses through new product launches, indications for existing products, and business development deals.
    • Pfizer aims for a non-COVID revenue compound annual growth rate of close to 10% between 2025 and 2030.
  4. COVID-19 Products and Future Opportunities:

    • Despite the challenges, Pfizer's CEO, Albert Bourla, remains optimistic about the company's COVID-19 products and mentions the development of a combination COVID/flu vaccine.
    • The potential for a boost in sales from the younger demographic, particularly with the combo vaccine, is discussed.
  5. Evaluation of Projections:

    • The article suggests that Pfizer's projections for a brighter future are believable, considering the company's strategic initiatives and past performance.
    • It acknowledges uncertainties but notes that much of the uncertainty related to COVID-19 revenue has dissipated.
  6. Valuation and Investment Opportunity:

    • Pfizer's current valuation is deemed to be lower than that of its peers, with a forward price-to-sales ratio of around 2.7 based on 2024 guidance.
    • The article emphasizes that even excluding COVID-19 revenue, Pfizer's valuation remains attractive.
    • The long-term prospects are considered promising, with anticipated growth paying off for investors, complemented by a substantial dividend yield of close to 6%.

In conclusion, while acknowledging short-term challenges, the article presents a positive outlook for Pfizer's long-term growth potential and investment opportunity.

Why Pfizer Is a Much Better Stock Than You Might Think | The Motley Fool (2024)


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