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Pfizer: Potential for More Upside, but Risks Remain

Pfizer (PFE) is a research-based, international biopharmaceutical company.

Primarily, its revenues are sourced from manufacturing and selling biopharmaceutical products, and to a lesser extent, from alliance agreements, under which it co-markets products discovered or developed by third parties.

Pfizer’s top pharmaceuticals include Eliquis, Ibrance, Prevnar 13, Enbrel, Chantix, Sutent, Xtandi, and Xeljanz, among others. During the ongoing pandemic, the company is also providing its own vaccine against COVID-19 in cooperation with BioNTech (BNTX).

The stock has rallied significantly over the year, yet shares do not seem to be particularly expensive. In fact, Pfizer should keep posting solid numbers backed by its diversified pharmaceutical portfolio.

Its dividend should provide a well-covered stream of capital returns with the potential to grow in the coming years. I am neutral on the stock. (See Pfizer stock charts on TipRanks)

Recent Performance

Due to enjoying significant tailwinds in the current environment, Pfizer’s Q2 results came in excellent.

Company-wide revenues grew 92% to $19 billion. The massive increase in sales was attributed to surged vaccine revenues, which grew to $9.2 billion against just $1.2 billion in the comparable period last year.

One could argue that vaccine revenues present a one-off opportunity for Pfizer. However, there are two things to note. First, a significant part of the global population remains unvaccinated. Thus, Pfizer is likely going to be delivering vaccines for quite some time.

Second, with booster shots just approved by the FDA, it’s quite likely that Pfizer may enjoy a recurring stream of vaccine cash flow for an extended period of time, especially if the pandemic persists.

However, the company’s performance remains robust regardless of its vaccine revenues. Excluding the revenue boost resulting from the vaccine, revenue growth was 10% year-over-year to $11.1 billion. Revenues from the Prevnar franchise grew 34% year-over-year, while the oncology business, the second most prominent contributor to revenues, grew 16% year-over-year. 

More Upside?

Following the stock’s rally over the past year, the current upside on Pfizer may be limited. Management hiked its adjusted diluted EPS guidance to a range of $3.95 to $4.05, which implies a P/E of around 11.

However, considering that EPS is likely to retract if vaccine revenues decline in the medium term, investors should take the admittedly low multiple with a grain of salt.

The company also has decent room to grow the DPS, whose annualized rate of $1.56 makes it well-covered by the underlying profits. The stock’s 3.6% yield could also be a potential catalyst for a valuation expansion in the current low-rate environment.

In that regard, the stock may have more upside ahead, despite its prolonged rally.

Wall Street’s Take

Turning to Wall Street, Pfizer has a Hold consensus rating, based on two Buys, nine Holds, and zero Sells assigned in the past three months. At $45.55, the average Pfizer price target implies 4% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

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