Should You Buy Pfizer For 25% Gains?

by Trefis Team
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[Updated: 5/6/2021] 25% Upside For PFE Stock

The stock price of Pfizer (NYSE:PFE) has seen a 7.5% rise over the last ten trading days, and we believe that the stock may continue to trend higher after the company announced solid Q1 results. Pfizer’s Q1 revenue of $14.6 billion was ahead of the $14.0 billion revenue forecast per Trefis estimates and $13.7 billion consensus estimates. Similarly, the company’s adjusted EPS of $0.98 per share was much higher than our forecast of $0.80, and the $0.78 consensus estimate. This strong performance can be attributed to a very high demand for Pfizer’s Covid-19 vaccine, which garnered $3.5 billion in Q1 sales. While the company also revised its full-year 2021 EPS guidance upward to $3.55 to $3.65, we expect this figure to very conservative going by the expected rise in Covid-19 vaccine sales. For instance, Pfizer estimates only $26 billion in Covid-19 vaccine sales in 2021 from its 1.6 billion doses, while its capacity is for 2.5 billion doses, and demand is obviously not a caveat here. Pfizer is likely to rake in sales from its full capacity in 2021, implying the total sales to be much higher than what the company has guided for.

Now that over 40% of the U.S. population has received at least one dose of vaccine, the economy is expected to open up gradually, signaling improvement for Pfizer’s other pharmaceutical sales, including other vaccines such as Prevnar, over the coming quarters. Based on the company’s earnings release we have updated the Pfizer model and we now expect 2021 sales of close to $80 billion, primarily taking into account sales of 2.5 billion doses for the Covid-19 vaccine. Our updated Pfizer’s Valuation of $50, based on an EPS estimate of $4.75 (vs. $3.30 earlier) and a P/E multiple of under 11x in 2021, reflects a large 25% premium to the current market price of around $40.

The massive change in our EPS estimate stems from changes in the expected sales of the Covid-19 vaccine. Pfizer had earlier guided for $15 billion in vaccine sales in 2021, and revised it to $26 billion now, while we estimate the figure to be around $35 billion, much higher than the company’s earlier provided guidance. Note that our forecast will change meaningfully if the intellectual property (IP) protections for Covid-19 vaccines are waived. Yesterday, the Biden administration announced its support for the waiver, and it will be interesting to see how this story develops. Overall, an IP waiver would mean increased production of vaccines and a much lower price.

Note that the P/E multiple of under an 11x figure is lower than the levels of over 14x seen in 2018 and 16x as recently as late 2020, this can be attributed to the fact that Pfizer’s EPS will be very high in 2021, followed by a gradual decline from 2022 onward, in-line with the demand for Covid-19 vaccine. While Pfizer has stated that people who receive Covid-19 vaccines will likely require booster shots within a year and potentially require an annual shot thereafter, much like seasonal flu shots, to protect against the virus as it evolves, the overall volume of vaccines sold will be much lower from 2023 onward, significantly impacting the company’s earnings. That said, it will be prudent for Pfizer to work on other vaccines using the mRNA technology to further enhance its pipeline.

[Updated: 5/3/2021] Pfizer Q1 Earnings Preview

Pfizer (NYSE: PFE) is scheduled to report its Q1 2021 results on Tuesday, May 4. We expect the company to likely post revenue and earnings above the consensus estimates, primarily led by its Covid-19 vaccine. Pfizer should see an overall pickup in pharmaceutical demand due to an increase in hospital visits with economies opening up gradually. We expect the company to navigate well based on these trends over the latest quarter.

However, our forecast indicates that Pfizer’s valuation is $40 per share, which is largely in-line with the current market price. Our interactive dashboard analysis on Pfizer’s Pre-Earnings has additional details.

(1) Revenues expected to be above the consensus estimates

Trefis estimates Pfizer’s Q1 2021 revenues to be around $14.0 billion, slightly above the $13.6 billion consensus estimate. Now that the economies are opening up with vaccination programs underway in multiple countries, pharmaceutical companies will likely benefit from an increase in the volume of new patient starts. For Pfizer, its Covid-19 vaccine remains the key growth driver in the near term, with 2021 annual sales projected to be $16 billion, per Trefis estimates. Pfizer’s Q4 2020 sales were up 12% y-o-y to $11.7 billion, primarily reflecting growth in Oncology and Vaccines sales. Our dashboard on Pfizer Revenues offers more details on the company’s segments.

2) EPS likely to be slightly above the consensus estimates

Pfizer’s Q1 2021 adjusted earnings per share (EPS) is expected to be $0.80 per Trefis analysis, slightly above the consensus estimate of $0.78. Pfizer’s adjusted net income of $2.4 billion in Q4 2020 reflected a 15% rise from its $2.1 billion figure in the prior-year quarter, due to higher revenues as well as margin expansion. The margins will likely improve further going forward, as the current Covid-19 crisis subsides. For the full year 2021, we expect the adjusted EPS to be higher at $3.30 compared to $2.22 in 2020.

(3) Stock price estimate in-line with the current market price

Going by our Pfizer’s Valuation, with an EPS estimate of $3.30 and a P/E multiple of 12x in 2021, this translates into a price of $40, in-line with the current market price near $39. While the 12x figure is lower than the levels of over 14x seen in 2018 and 16x as recently as late 2020, this can be attributed to the fact that Pfizer’s EPS will be higher in 2021, followed by a decline from 2022 onward, with a slowdown in Covid-19 vaccine sales. This also explains why PFE stock hasn’t seen the kind of growth that some of the other Covid-19 related stocks have. Look at our Pfizer Covid-19 Vaccine Updates for more details.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.

While PFE stock may be fully valued, it is helpful to see how its peers stack up. Check out Merck Peer Comparisons to see how MRK stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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