In the early days of the pandemic, there was a huge and irrational run on toilet paper. No one ever figured out why, and the manufacturers assured us there was plenty of supply. But people hoarded it anyway.
There was a more rational run on sanitizing products – wipes, hand sanitizers, bleach, disinfectant sprays, etc. The shelves were bare as people rushed to disinfect everything that came into their homes, from groceries to mail. Suppliers prioritized deliveries to meet the requirements of hospitals, nursing homes and other front-line workers.
As you might expect in this situation, revenue and profits soared. The stock price went from US$153.54 at the end of 2019 to US$237.49 on Aug. 7, 2020. We recommended the stock on June 8 of that year at US$197.57 in my Internet Wealth Builder newsletter.
Just as everything seemed full steam ahead for Clorox, the medical profession began to raise doubts about the danger of the virus being transmitted by touching doorknobs or pushing elevator buttons. Air-borne droplets were the real problem. Wear masks.
People stopped disinfecting their bananas and milk cartons. We all still used hand sanitizers but perhaps not as rigorously. As more people became vaccinated, the demand for disinfectants dropped. Now you’ll have no problem finding them at the local supermarket.
The impact on Clorox’s business was dramatic. The company’s fourth-quarter report for fiscal 2021 (to June 30) showed a 9 per cent year-over-year sales decrease and a 68 per cent decline in diluted net earnings per share.
The company said the sales decrease was due primarily to the deceleration of shipments from peak levels during the COVID-19 pandemic. Earnings were US$97-million (78 US cents a diluted share), compared with US$310-million (US$2.41 a share) in the year-ago quarter.
The outlook going forward isn’t much better. The company is forecasting a sales decline of between 2 per cent and 6 per cent in fiscal 2022.
The share price is reflecting all this bad news. The stock closed Monday at US$168.20. Given the outlook for 2022, it’s not a stock I would continue to hold. Clorox’s big pandemic gain turned out to be a flash in the pan.
Pfizer Inc. may be a different story. I first recommended the stock in the Internet Wealth Builder in April, 2020, at US$38.73, in part because it appeared to be one of the early front-runners in the race to develop a vaccine.
That’s the way it turned out. Pfizer and partner BioNTech were the first to have a COVID-19 vaccine approved for emergency use in the United States and their vaccine has proven to be highly effective with minimal side effects.
The stock had been languishing for years, and even after the vaccine was given conditional approval the price barely moved. But it recently broke through the US$40 barrier and is now trading around the US$50 level – it closed Monday at US$49.93 – up more than 25 per cent since I recommended buying the shares.
The company itself continues to grow. Pfizer said Monday it would buy TSX-listed biotech Trillium Therapeutics Inc. in a deal valued at US$2.26-billion.
What happened? Pfizer exceeded analysts’ expectations by a wide margin in second-quarter revenue and earnings, propelling the stock higher.
The company reported revenue of just under US$19-billion in the quarter, up 92 per cent from US$9.9-billion in the same period of 2020. Vaccines accounted for US$9.2-billion in total revenue.
Adjusted income was just under US$6.1-billion, up 75 per cent from US$3.5-billion last year. On a diluted per share basis, adjusted earnings were US$1.07 compared with 62 US cents a year ago.
The company raised its full-year guidance for revenue to a range of US$78-billion to US$80-billion and adjusted diluted earnings per share to a range of US$3.95 to US$4.05. Albert Bourla, Pfizer’s chief executive officer, said he remains “highly confident” in Pfizer’s ability to achieve at least a 6-per-cent compound annual growth rate through 2025.
Pfizer expects to sell about 2.1 billion doses of its COVID-19 vaccine this year, generating revenue of US$33.5-billion. That’s 42.5 per cent of the midpoint of its revenue estimate for the year. But what about 2022 and 2023? Demand will gradually decline as more people are inoculated – unless it turns out the vaccine has a short life span and requires an annual booster. That appears increasingly likely; Israel has advised booster shots for those over age 50 and the Biden administration recommended a third shot this past week. On Monday, the U.S. Food and Drug Administration granted full approval to the Pfizer/BioNTech COVID-19 vaccine for people age 16 and older – a development that may open the door to more vaccine mandates.
The implications for the company’s revenue and profits are huge.
In short, this could be another Clorox situation – a temporary spike followed by a return to mediocre results. Or, more likely, it could be just the start of a new growth spurt for Pfizer.
If you own shares, my advice is to maintain your positions. You’re receiving a respectable 3-per-cent dividend and there’s more capital gains potential here.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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