What Drove Pfizer’s Stock Price Growth Between 2016 And 2018?

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PFE: Pfizer logo
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Pfizer

Pfizer’s (NYSE:PFE) stock price grew over 30% from around $32 levels by the end of 2016 to around $43 by the end of 2018, primarily driven by expansion of margins. Pfizer’s stock price growth was higher than the 28% jump seen for Merck, and around 10% growth seen for Johnson & Johnson. This outperformance can partly be attributed to the company’s ongoing restructuring, where it plans to merge its consumer healthcare business with that of GlaxoSmithKline, and merge its established products portfolio with that of Mylan’s.  Also, Pfizer has gotten approvals for key biosimilars that could add strong revenue growth going forward, in our view.

In this note we focus on the factors that drove growth for Pfizer’s stock between 2016 and 2018. We can break down the movement in the stock price into three factors: 1. growth in revenue, 2.change in net income margin and share count, and 3. expansion of P/E multiple. You can look at our interactive dashboard analysis ~ What Factors Drove Over 30% Growth In Pfizer’s Stock Between 2016 And 2018? ~ for more details.

#1. Revenues Grew 1.6% From $52.8 Billion In 2016 to $53.6 Billion In 2018. The Biggest Change In Revenue Was Driven By The Company’s Oncology Drugs Segment.

  • Pfizer’s oncology drugs portfolio added $1.8 billion in sales between 2016 and 2018., driven by higher Ibrance sales (Look how Ibrance fares in breast cancer drugs market).
  • The company’s legacy pharma, consumer healthcare and biosimilar also added $1.6 billion over the same period, driven by higher alliance revenues from Eliquis, which has become the top novel oral anticoagulant in the U.S in total prescriptions. Read more on Eliquis here.
  • Look at our interactive dashboard analysis for an in depth view on Pfizer’s revenues.
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#1.1 Pfizer’s Revenue Growth Has Been Slower Than Some of Its Peers

#2. Adjusted Net Income Grew At A Faster Pace Compared To Pfizer’s Revenues, Due To Margin Expansion

  • Pfizer’s adjusted net income grew from $14.8 billion in 2016 to $18.0 billion in 2018.
  • This can be attributed to margin expansion and modest growth in revenues.
  • Adjusted net income margin grew from 28% to 33% over the same period.
  • We discuss the factors that impacted the margin in the below section.

#2.1 Total Adjusted Expenses Declined From $32.3 Billion In 2016 To $29.8 Billion In 2018.

  • Notable Change Can Be Seen Primarily In The Income Taxes, Which Were Impacted By The TCJA (Tax Cuts & Jobs Act), And Its Related Adjustments In Non-GAAP Items.
  • Look at our interactive dashboard analysis for in depth view on Pfizer’s expenses.

#2.2 Adjusted EPS Has Also Seen Strong Growth, Led By Higher Net Income And Lower Share Count

  • Pfizer’s adjusted EPS grew from $2.40 in 2016 to $3.00 in 2018, driven by higher adjusted net income and lower share count.
  • No. of shares declined from 6.2 billion to 6.0 billion over the same period, amid the company’s authorized share buyback plan of $11.0 billion from December 2015.

#3. Price To Earnings Multiple for Pfizer Expanded Between 2016-2018, And It Has Been In Line With That of Johnson & Johnson But Lower Than That of Merck

  • Pfizer’s P/E multiple expanded from 13.6x in 2016 to 14.3x in 2018.
  • This compares with Johnson & Johnson, which saw its P/E multiple contract from 17.1x to 14.7x during the same period. The stock price corrected in 2018, amid multiple litigations filed against the company.
  • Merck’s P/E multiple expanded from 15.6x to 17.4x over the same period, amid additional approvals for Keytruda, and strong Keytruda sales.
  • Note these multiples are arrived by using the stock prices at the end of the year, and corresponding adjusted earnings reported for that year.

 

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