Time To Buy Pfizer Stock?

After losing nearly half its value since its 2021 highs, Pfizer stock (NYSE: PFE) now trades at around $25, creating a compelling value opportunity. While the company navigates a new landscape following the normalization of COVID-19 vaccine demand, its strong fundamentals and appealing 6.9% dividend yield suggest a solid opportunity for long-term investors seeking risk-adjusted returns.

That being said, if you seek an upside with less volatility than holding an individual stock, consider the High Quality Portfolio. It has comfortably outperformed its benchmark—a combination of the S&P 500, Russell, and S&P MidCap indexes—and has achieved returns exceeding 91% since its inception. Separately, see – Ethereum Play: BMNR Stock To $100?

Pixabay

Current Market Context

Pfizer’s stock decline reflects the challenging transition from pandemic-driven exceptional performance to normalized operations. The company’s revenues peaked during COVID-19 when vaccine sales provided extraordinary growth, creating difficult year-over-year comparisons. Current revenues of $64 billion sit 36% below 2021 peak of $101 billion, contributing to investor skepticism about the company’s post-pandemic growth trajectory.

Operational Performance Assessment

Revenue Growth: Mixed Signals with Recent Improvement

• 3-year average revenue decline of 12.4% (vs. S&P 500 growth of 5.3%)
• 12-month revenue growth of 13.5%, reaching $64 billion (vs. S&P 500 growth of 5.2%)
• Most recent quarter showed 10.3% growth to $15 billion (vs. S&P 500 growth of 6.1%)

The data suggests Pfizer has stabilized its revenue base and returned to growth after the 2023 trough. While the three-year average remains negative due to the COVID normalization, recent quarterly performance indicates underlying business momentum is building.

Profitability: Clear Competitive Advantage

Pfizer demonstrates superior profitability across key metrics, indicating operational efficiency and pricing power:

• Operating margin of 26.1% significantly exceeds S&P 500 average of 18.8%
• Operating cash flow margin of 23.8% surpasses S&P 500 average of 20.2%
• Net income margin of 16.8% outperforms S&P 500 average of 12.8%

The company’s ability to maintain superior profitability during a challenging transition period demonstrates operational resilience. The company is on track to achieve approximately $4.5 billion in net cost savings by the end of 2025. This is part of a larger, multi-year cost-cutting program that aims to deliver a total of $7.7 billion in net savings by the end of 2027.

Financial Stability: Solid Foundation with Minor Concerns

Pfizer’s balance sheet reflects financial strength with manageable leverage:

• Debt-to-equity ratio of 42.6% is elevated compared to S&P 500 average of 20.2%
• Cash-to-assets ratio of 6.4% slightly below S&P 500 average of 7.0%
• Total debt of $61 billion against market capitalization of $142 billion

While debt levels warrant monitoring, they remain manageable given Pfizer’s strong cash generation capabilities and the pharmaceutical industry’s typically stable cash flows.

Market Risk Assessment

Downturn Performance: Below-Average Resilience

Historical analysis reveals PFE’s tendency to underperform during market stress:

• 2022 Inflation Shock: 57.3% decline vs. S&P 500’s 25.4% decline
• 2020 COVID Pandemic: 30.0% decline vs. S&P 500’s 33.9% decline
• 2008 Financial Crisis: 57.9% decline vs. S&P 500’s 56.8% decline

The mixed downturn performance suggests PFE may experience amplified volatility during market stress, though recovery patterns have historically been strong. For more details, check out our dashboard on Buy or Fear Pfizer stock?

Valuation Analysis: Compelling Opportunity

Pfizer trades at significant discounts across multiple valuation measures:

• Price-to-Sales: 2.2x vs. S&P 500 at 3.3x (33% discount)
• Price-to-Free Cash Flow: 11.5x vs. S&P 500 at 21.5x (47% discount)
• Price-to-Earnings: 13.3x vs. S&P 500 at 24.1x (45% discount)

These metrics suggest the market has priced in considerable pessimism regarding Pfizer’s future prospects, creating potential upside for patient investors.

The valuation disconnect appears driven by growth concerns rather than fundamental deterioration. Key supporting factors include:

• Pipeline Strength: Pfizer has stated its ambition to have eight or more blockbuster oncology medicines in its portfolio by 2030.
• Current Portfolio: Pfizer’s portfolio is showing widespread strength, with Vyndaqel maintaining a robust growth trajectory and Abrysvo and Padcev also seeing strong gains.
• Management Initiatives: Pfizer is pursuing cost-cutting initiatives to improve profitability, with a target of achieving $7.7 billion in net savings by the end of 2027.
• Income Generation: 6.9% dividend yield provides attractive current income

Overall, Pfizer presents an appealing value opportunity for investors comfortable with moderate operational risk. While the company has faced growth challenges and shown below-average resilience during downturns, its current price seems to more than account for these issues.

We aren’t suggesting Pfizer is the top pick in the pharmaceutical sector; companies like AbbVie and Eli Lilly have stronger growth stories. However, for investors seeking a value play, Pfizer is a compelling choice.

Of course, our assessment could be wrong, and the market may not assign a higher multiple until it sees a solid turnaround. Nonetheless, for investors with a 3-5 year investment horizon, we believe Pfizer could offer strong returns. See, there always remains a meaningful risk when investing in a single, or just a handful, of stocks. Consider the Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Invest with Trefis Market-Beating Portfolios

See all Trefis Price Estimates