After an 8% fall year-to-date, at the current levels, we believe Pfizer stock (NYSE: PFE) has some room for growth. PFE stock fell from $57 in early January to $52 now. The YTD -8% return for PFE marks an outperformance with -19% returns for the broader S&P500 index.
Looking at the longer term, PFE stock is up 41% from levels seen in late 2020. This marks a significant outperformance compared to some of its peers and the broader markets, with Johnson & Johnson stock rising 16%, Merck stock up 21%, and the S&P 500 index rising just 3% over the same period.
This 41% rise for PFE stock since late 2020 was driven by: 1. Pfizer’s revenue, which grew a solid 122% to $92.4 billion over the last twelve months, compared to just $41.7 billion in 2020. This was partly offset by 2. the company’s P/S ratio, which fell 36% to 3.2x trailing revenues, from 4.9x in 2020, and 3. a 1% rise in its total shares outstanding to 5.6 billion currently. This means the company’s revenue per share rose 119% to $16.46 now, compared to $7.50 in 2020.
Pfizer’s sales over the recent years were primarily driven by a very high demand for the Covid-19 vaccine, which garnered sales of $36.8 billion in 2021. However, as the global vaccination rate rises, the demand for Covid-19 vaccines is also expected to fall. The revenue growth in 2022, though, will be bolstered by its Covid-19 antiviral pill sales. The company has guided for $54 billion in 2022 sales from these two products.
While the company’s other products, such as Eliquis (alliance revenue) and Prevnar, are also seeing a rebound in demand, the company is eying inorganic growth to expand its pipeline. Earlier this year, Pfizer acquired Arena Pharmaceuticals for $6.7 billion. Arena has a robust drug pipeline focused on immunology drugs. One of the late-stage candidates – Etrasimod – is used to treat ulcerative colitis, Crohn’s disease, and eosinophilic esophagitis, and its potential peak sales are estimated to top $2.5 billion.
Pfizer has also announced its plans to acquire Biohaven Pharmaceutical, a company specializing in migraine treatments, in a deal valued at about $11.6 billion. The peak sales potential of Biohaven’s portfolio is estimated to top $6 billion. These deals will bode well for Pfizer in the long run, as the contribution from the Covid-19 vaccine and antiviral pills will decline in the coming years.
While the company has strong prospects, it faces headwinds from the current weakness in broader markets. The S&P500 has now entered the bear market territory with rising concerns of slowing economic growth given the high inflation, Fed action, and supply chain disruptions. However, we estimate Pfizer’s valuation to be $60 per share, reflecting a 16% upside from its current market price of $52, implying that investors may be better off using the recent dip to enter PFE stock for gains in the long run. Our valuation is based on a forward P/E ratio of around 9x based on our earnings forecast of $7.05 on a per-share basis for full-year 2022. This compares with an average of 10x seen over the last three years. We have allocated a lower earnings multiple for Pfizer due to an expected decline in earnings over the coming years as demand for Covid-19 products fades.
While PFE stock has more room for growth, it is helpful to see how Pfizer’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for IDEXX Laboratories vs. Entegris.
With inflation rising and the Fed raising interest rates, PFE has fallen 8% this year. Can it drop more? See how low Pfizer stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||-6%||-18%||74%|
|Trefis Multi-Strategy Portfolio||-3%||-22%||207%|
 Month-to-date and year-to-date as of 6/28/2022
 Cumulative total returns since the end of 2016