Should You Buy Pfizer Stock After An Upbeat Q2?

Pfizer stock (NYSE: PFE) reported its Q2 results last week, with revenue and earnings comfortably above ours and the street estimates. However, PFE stock has seen a fall of around 5% in a week as the company didn’t raise its full-year outlook, and there are rising concerns about the growth of the company’s non-Covid-19 products. After the recent fall, we believe PFE stock has some more room for growth and may see higher levels, as discussed below.

Pfizer’s revenue of $27.7 billion in Q2 was up 47% y-o-y, and its EPS of $2.04 reflected a significant 92% growth. This compares with our estimates of $26.5 billion and $1.92, respectively. The revenue growth was led by higher sales of its Covid-19 vaccine and antiviral pills, which were well above the analyst estimates.

Despite the upbeat results, the company kept its revenue guidance for the full-year 2022 unchanged to be in the range of $98 and $100 billion, partly due to the strengthening dollar. It raised the lower end of its earnings guidance by $0.05 to now be in the range of $6.30 and $6.45 on a per share and adjusted basis.

Furthermore, the company’s non-Covid products, including Ibrance and Xeljanz, saw slower than anticipated growth, raising investor concerns over the long-term growth for the company, given that sales of Covid-related products are expected to decline over the coming years.

However, we think that Pfizer’s Q2 results were great, and it didn’t warrant a decline post the earnings announcement. Some of the company’s non-Covid products, such as Eliquis (alliance revenue) and Prevnar, are seeing a rebound in demand. Eliquis revenue was up 23%, while Prevnar sales grew 18% in Q2. Our dashboard on Pfizer revenues has details of the company’s segments.

Pfizer is eyeing 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 decline in the coming years.

Given the recently announced results and outlook, we have updated our model and lowered our estimates. We expect full-year 2022 revenue to be $101 billion, within the company’s provided range, but earnings to be $6.56, slightly higher than its estimates.

Although we have lowered our revenue and earnings estimates for the full year, we maintain  Pfizer’s valuation of $60 per share, reflecting a 22% upside from its current market price near $50, 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 $6.56 on a per-share basis for full-year 2022. At its current levels, PFE stock is trading at under 8x its forward earnings, compared to the last three-year average of 10x, implying more room for growth. We have allocated a lower earnings multiple for Pfizer (compared to the levels seen in recent years) 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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 8/3/2022
[2] Cumulative total returns since the end of 2016

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