Pfizer Faces Challenges But Potential Upside Remains
Pharmaceutical stocks, particularly Pfizer (NYSE: PFE), have recently drawn attention following President Trump’s executive order aimed at lowering drug prices to align with what other countries pay. This directive initially spurred a negative market reaction; however, many pharma stocks, including Pfizer, began to rebound as Wall Street analysts pointed out significant legal challenges the order may encounter. The pharmaceutical industry has long asserted that high U.S. pricing is essential for funding the innovation pipeline that leads to groundbreaking treatments. Consequently, any form of price control may directly affect their considerable R&D investments.
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Current Performance Amid Challenges
Pfizer’s shares currently trade around $23, reflecting a 13% decline year-to-date and a significant drop from their 2021 peak of about $60. The company saw extraordinary growth during the COVID-19 pandemic, achieving annual sales exceeding $100 billion in 2022 from just $42 billion in 2020, largely due to high demand for its vaccines. However, as this demand has decreased, Pfizer’s revenue has fallen to $63 billion over the past twelve months.
Recent Acquisitions and Setbacks
To counteract declining sales from COVID-19 products, Pfizer has pursued an aggressive acquisition strategy. The company has purchased Seagen, Global Blood Therapeutics, and Biohaven. While Seagen’s performance has been strong, Pfizer withdrew its sickle cell disease treatment, Oxbryta, from approved markets due to risks of painful complications. This withdrawal is concerning, especially as Pfizer invested $5.4 billion in acquiring Global Blood Therapeutics, the developer of Oxbryta. Critics contend this acquisition may have been overpriced. Additionally, last month, Pfizer announced it would stop development of its experimental weight-loss pill, danuglipron, after a trial participant suffered a possible drug-induced liver injury.
Signs of Potential Recovery
Despite these hurdles, there are encouraging signs for Pfizer’s recovery. Analysts suggest that 2023 might mark the lowest point for Pfizer’s sales slump, with revenues expected to rise gradually. Non-COVID-19 products are showing decent performance, particularly with market share growth for Vyndaqel. Furthermore, Pfizer has launched a cost-saving initiative targeting a $7.7 billion reduction in expenses by 2027, reflecting its commitment to boosting profitability.
Valuation and Investor Considerations
We estimate Pfizer’s valuation to be $32 per share, indicating a nearly 40% potential upside. Trading at approximately $23, Pfizer shares are priced at just eight times trailing earnings of $2.91 per share, a substantial discount compared to the five-year average P/E ratio of 13. Although there may be grounds for a downward adjustment to the valuation multiple considering uncertain long-term revenue growth post-COVID, the current gap seems excessive.
Conclusion
While Pfizer confronts real challenges, these appear largely factored into its current valuation. The combination of discounted shares, positive developments in non-COVID products, and strategic efforts to streamline operations suggests that patient investors might find substantial value in PFE shares during this transitional phase for the company.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
