This Logistics Company Appears To Be A Better Pick Over Pfizer Stock
We believe that FedEx stock (NYSE: FDX) is a better pick than the pharmaceutical giant Pfizer stock (NYSE: PFE), given its better prospects. Although these companies are from different sectors, we compare them because they have a similar revenue base of $90-$100 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below.
If we look at stock returns, FDX stock has fared better, with a 5% decline in the last twelve months, compared to a 20% decline for PFE and an 8% decline for the broader S&P500 index. There is more to the comparison, and in the sections below, we discuss why we believe that FedEx can offer higher returns than Pfizer in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.
1. Pfizer’s Revenue Growth Is Better
- Both companies posted sales growth over the last twelve months. Still, Pfizer’s revenue growth of 23% is much higher than just 9% for FedEx.
- Even if we look at a longer time frame, Pfizer fares better, with its revenue rising at an average annual rate of 40% to $100 billion in 2022, compared to $41 billion in 2019, while FedEx saw its sales rise at an average rate of 10.7% to $93.5 billion in fiscal 2022, compared to $69.7 billion in fiscal 2019 (The fiscal year for FedEx ends in May).
- Pfizer’s sales over the recent years were primarily driven by a very high demand for the Covid-19 vaccine. However, the demand for Covid-19 vaccines is declining with a rise in the global vaccination rate. This will likely weigh on Pfizer’s revenue growth over the coming years. The revenue growth in 2022 was bolstered by its Covid-19 antiviral pill sales.
- For FedEx, revenue growth over the recent years was driven by shelter-in-place restrictions and the spread of the Covid-19 virus, resulting in e-commerce growth. However, this trend has cooled off, reflected in lower delivery volumes. FedEx has seen a 12% fall in average daily package volume for the six months ending Nov 2022.
- Our Pfizer Revenue and FedEx Revenue dashboards provide more insight into the companies’ sales.
- Looking forward, revenue for FedEx is expected to grow faster over the next three years.
2. Pfizer Is More Profitable
- Pfizer’s operating margin of 40% over the last twelve-month period is better than 5% for FedEx.
- This compares with 36% and 4% figures in 2019 (fiscal 2020 for FedEx), respectively.
- Pfizer’s free cash flow margin of 27% is also better than 10% for FedEx.
- Our Pfizer Operating Income Comparison and FedEx Operating Income Comparison dashboards have more details.
- Looking at financial risk, Pfizer’s 17% debt as a percentage of equity is much lower than 87% for FedEx, while its 1% cash as a percentage of assets is lower than 8% for the latter, implying that Pfizer has a better debt position, but FedEx has more cash cushion.
3. The Net of It All
- We see that Pfizer has demonstrated better revenue growth, is more profitable and has a better debt position. On the other hand, FedEx has more cash cushion.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe FedEx is the better choice.
- Both companies will have a challenging few quarters. For Pfizer, a decline in its vaccines and antiviral pill for Covid-19 will weigh on its sales growth. That said, it should benefit from gains for its other products, including Eliquis (alliance revenue), Vyndaqel, and Prevnar. Still, a significant decline in 2023 sales is in the cards for Pfizer.
- For FedEx, a decline in shipment volume, slowing economic growth, and rising costs don’t bode well. It will report its fiscal Q3 numbers next week, and we expect it to post a 4% y-o-y sales decline.
- Looking at valuation, both stocks are trading lower than their historical average. FedEx’s stock trades at 0.6x trailing revenues vs. the last five-year average of 0.7x, while Pfizer trades at 2.2x trailing revenues vs. the last five-year average of 5.4x.
- This significant drop in Pfizer’s valuation can be attributed to two factors. 1. It was trading at a very high P/S multiple of over 8x in 2021, owing to its Covid-19 vaccine sales, and 2. investors have now discounted the stock for the expected decline in sales in 2023. For perspective, Pfizer has guided $69 billion in sales for 2023 (at the mid-point of its range), implying a significant 31% decline y-o-y.
- Now, Pfizer is trading at 3.2x its forward revenues, which compares with its last five-year average of 3.6x (based on forward sales).
- Our Pfizer (PFE) Valuation Ratios Comparison and FedEx (FDX) Valuation Ratios Comparison have more details.
- Our forecast points to an expected return of 15% for FedEx over the next three years vs. an 8% expected return for Pfizer stock, based on Trefis Machine Learning analysis.
While FDX stock may outperform PFE, 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 at how counter-intuitive the stock valuation is for Xylem vs. Merck.
With higher inflation and the Fed raising interest rates, among other factors, Pfizer stock has seen a 20% fall in the last twelve months. 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.
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.
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