Is Pfizer Stock Undervalued At $40?
Pfizer stock (NYSE: PFE) has seen a fall of 21% this year, compared with 2% returns for the broader S&P500 index. Pfizer stock has been weighed down due to an anticipated decline of over 30% in its 2023 sales, primarily due to lower sales of its Covid-19 products. The company expects its Comirnaty and Paxlovid combined sales to be $21.5 billion in 2023, vs. the $56.7 billion they generated in 2022.
Pfizer’s revenue rose at an average annual rate of 40% to $100 billion in 2022, compared to $41 billion in 2019, primarily driven by a very high demand for the Covid-19 vaccine and the antiviral pill. Although the demand for Covid-19 products is expected to decline meaningfully in 2023, Pfizer expects 2023 to be the low point and sales of Covid-19 products to rise from 2024. Pfizer’s other products, including Eliquis (alliance revenue), Vyndaqel, and Prevnar, will likely see steady sales growth with market share gains. In fact, non-Covid product sales are expected to rise in the high single-digits in 2023.
Pfizer has recently announced that it will acquire Seagen Inc. for $43 billion ($229 per share), reflecting a premium of 32% at the closing price of $173 on Friday, Mar 10, 2023 (before the deal announcement). This appears to be a great move for Pfizer, given that it will see a significant drop in sales from its Covid-19 products and some other drugs that lose market exclusivity over the coming years. Seagen’s revenues are expected to top $2 billion in 2023, and it has a promising deep oncology pipeline. Seagen’s sales are estimated to top $10 billion by 2030. Of late, Pfizer has been on an acquisition spree. It acquired Biohaven Pharmaceuticals, Global Blood Therapeutics, and Arena Pharmaceuticals in 2022.
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Now, looking at valuation, at its current level of $40, Pfizer stock is trading at 12x its forward expected earnings of $3.35, compared with its last five-year average of 13x. However, the forward expected earnings per share of $3.35 is much lower than the $6.58 the company reported in 2022. As mentioned earlier, Pfizer expects its sales to return to growth from 2024 after a decline in 2023. We estimate Pfizer’s Valuation to be $56 per share, reflecting a significant 40% upside from the current market price of $40.
While PFE stock looks undervalued, 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 and recent market volatility have created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for IDEXX Laboratories vs. Entegris.
With higher inflation, the Fed raising interest rates, and concerns over declining earnings in the near term, PFE has fallen 24% 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.
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