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Pfizer Inc(PFE-N)

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Is Pfizer Stock a Buy Now?

Motley Fool - Sun Dec 3, 2023

Stocks have rallied this year, but one of the world's most famous pharma companies didn't join the party. Pfizer(NYSE: PFE), known for its billion-dollar coronavirus products -- the vaccine Comirnaty and the treatment Paxlovid -- saw its shares drop about 40%.

The declines came for two reasons. First, investors worried about sales of Pfizer's coronavirus products in a post-pandemic world. And second, some of Pfizer's older blockbusters face patent expirations in the coming years. All of this means revenue is set to fall, at least in the near term. And that doesn't delight investors.

At the same time, it's important to take a look at the complete picture. This includes Pfizer's newer programs and what they may deliver in the future, as well as the company's valuation today. Is Pfizer a buy right now -- or a stock to avoid? Let's find out.

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Image source: Getty Images.

Pfizer's $100 billion in revenue

First, let's look at the bad news. Pfizer's vaccine Comirnaty and its treatment Paxlovid are no longer the revenue drivers they were last year, when they helped Pfizer generate record revenue of more than $100 billion. Recently, Pfizer cut this year's revenue guidance to a range of $58 billion to $61 billion, due to decreased demand for coronavirus products.

Meanwhile, Pfizer faces patent expirations on certain top products later this decade, such as the blood thinner Eliquis and oncology drug Ibrance. Pfizer has even predicted that losses of exclusivity will cut $17 billion from its revenue from 2025 to 2030.

Before moving on to the brighter news, we should consider this: The challenges Pfizer faces today are normal parts of the pharmaceutical business. Coronavirus product sales reached extremely high levels during a pandemic situation -- a unique time. It's normal for those products to bring in lower sales once infection risks have declined.

And the positive news for Pfizer here is that demand hasn't completely disappeared. Like influenza, COVID-19 represents an opportunity for annual vaccination, and therefore recurrent revenue, well into the future.

As for patent expiration, this, too, is something all pharma companies face at a certain point. So we shouldn't focus on the losses of exclusivity, but instead on what Pfizer is doing to compensate and grow. And here begins our good news.

The biggest streak of product launches ever

Pfizer is on track to complete its biggest streak of product launches ever. The company plans to release 19 new products or indications in 18 months, and so far, it's completed 13 of those. It expects these to provide $20 billion in revenue by 2030.

Pfizer also has been working hard on external growth, and through business deals, it aims to deliver an additional $25 billion in revenue by that time. Most of this is through acquisitions that already have been completed, as well as its agreement to buy oncology specialist Seagen. Pfizer expects the Seagen deal to close by early next year.

The pharma giant is focused on growth: expanding its work in the area of mRNA therapeutics, for example. Right now, it's shepherding both stand-alone mRNA flu and combined coronavirus/flu vaccine candidates through late-stage trials.

Pfizer also is delivering growth in key leadership areas such as pneumococcal vaccination; in the recent quarter, it had a 95% share of the adult market with Prevnar 20. The approval this year of Prevnar 20 in the U.S. pediatric market, and ongoing demand in the adult market, helped the product and its earlier version Prevnar 13 generate double-digit revenue growth in the quarter.

So we can count on revenue growth from some current products, as well as contributions from new launches in the coming years.

Pfizer's annual dividend

And we shouldn't forget that Pfizer also pays an annual dividend of $1.64 per share, which currently yields over 5.4% -- far surpassing the yield of the S&P 500 index. This means you can count on Pfizer for passive income even during times of share-price weakness.

Now let's get back to our question. Trading for 19 times forward earnings estimates, is Pfizer a buy? Of course, the pharma giant isn't in high-growth mode right now, and the company has reached a turning point that won't necessarily be 100% rosy. Sales of many key products are on the decline.

But this is when it's important to think long-term. If we imagine what Pfizer will look like a few years down the road, the picture looks much brighter, thanks to the steps the company is taking today. That's why, right now, Pfizer stock looks very reasonably priced -- and would make a great addition to any long-term healthcare portfolio.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and Seagen. The Motley Fool has a disclosure policy.

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