Shares of COVID-19 vaccine maker and biopharma behemoth Pfizer (PFE) have slipped into a correction on the back of the broader market sell-off. Now down around 16% from its peak just north of $60 per share, Pfizer is at a crossroads. With COVID-19 cases picking up rapidly in China, there are reasons to be concerned that another wave could hit North America this Spring.
Just as the restrictions were easing and masks were coming off, another round of restrictions and booster shots (fourth doses for some) could be in the cards. While the pandemic is a concern that’s fallen into the background of late, it is still worth noting that we’re not yet in an endemic quite yet.
As cases of the next variant (BA.2) look to pick up, there’s a real risk that COVID-19 may, once ahead, hog the headlines and weigh on certain types of reopening stocks.
Pfizer stock is still a great hedge against a worsening of the pandemic. We all want the endemic to arrive already. Still, the reality of the situation is that it will be hard to make such a move, given the coronavirus’s insidious and potentially seasonal nature.
Given the modest multiple, the likelihood of more booster recommendations from federal health authorities, and sales drivers beyond vaccines, I remain bullish on Pfizer stock, not just as a resurgence hedge but as a sound long-term investment.
FDA Authorizes Fourth Vaccine Dose for Those Aged 50+
Here we go again. With the fourth dose of Pfizer and Moderna (MRNA) vaccines (Comirnaty and Spikevax) getting authorization from the FDA for those aged 50 and older, it seems like the end of the pandemic will not happen anytime soon. The CDC, along with the Biden administration, also gave the green light for its recommendation of yet another booster for eligible older adults amid a rising number of BA.2 variant cases in the U.S.
Indeed, when many analysts modeled vaccine revenues in late 2020, anything short of a sharp decline in booster revenues going into the back half of 2022 would have been viewed as more of a bull case for Pfizer. Now, it seems like Pfizer’s COVID-19 medicine revenue stream could last for many more years to come, given the world has just had to live with and adapt to the coronavirus.
With no precise estimate of when the pandemic will end, we could witness a scenario that sees seasonal booster sales for many years. For Pfizer, a correction to the upside and upgrades may be in order.
In 2021, Pfizer made close to $37 billion in COVID-19-related sales. This year, the firm could make around $60 billion from vaccines and its oral treatment Paxlovid, with a nearly even contribution between the two (~$32 billion from vaccines and ~$28 billion from the higher-margin Paxlovid).
Just how much longer the COVID-19 segment will continue generating ample sums for the company remains to be seen. Regardless, Pfizer is reinvesting the capital in the right places, with various other drugs in the pipeline that could fuel cash flows well after COVID-19 medicines finally experience a steep drop going into endemic territory.
Indeed, Pfizer is more of a biotech firm making the right investments than a lower-growth pharma play that it used to be when the Upjohn division was weighing it down.
Pfizer Has a Lot More Going for it Beyond Just COVID Medicines
Although the valuation (shares currently trade at 13.3 times trailing earnings and 3.7 times sales) and a lofty dividend yield of 3.1% are not indicators of innovation and growth, I think there’s a chance that the market may have the name all wrong.
In prior pieces, I argued that Pfizer is one of the most innovative firms in the biopharma space. After all, the COVID-19 vaccine and Paxlovid treatment are game-changing treatments delivered in record time. Count me as unsurprised if the company develops a more generalized mRNA coronavirus vaccine that propels us out of this pandemic.
Moderna may get all the limelight for being the go-to way to play mRNA technology. While it may have more upside from single innovations, Pfizer is arguably the safer bet, given its incredibly diverse stream of patent-protected sales drivers and its robust pipeline that could yield the next big blockbuster. In that regard, Pfizer is arguably the safer biotech player in this type of market environment.
Wall Street’s Take
Turning to Wall Street, PFE stock comes in as a Moderate Buy. Out of 15 analyst ratings, there are seven Buys and eight Hold recommendations assigned in the past three months.
The average Pfizer price target is $61.21, implying an upside potential of 19.3%. Analyst price targets range from a low of $50.00 per share to a high of $76.00 per share.
The Bottom Line on Pfizer Stock
Booster season is quickly approaching, and Pfizer may be in a spot to compress its already-low price-to-earnings multiple even further. Beyond COVID-19, the company has a lot going for it as it invests its COVID-19 windfall across its deep drug pipeline.
With a modest valuation and an attractive dividend yield, the stock still appears like a glimmer of value in a rocky market rather than a stock bound to flop in a post-pandemic environment.
Yes, there are a lot of uncertainties when it comes to investing in biopharma stocks. The outcome of particular clinical trials could be make-or-break for smaller-cap firms with all of their eggs in one or two baskets.
Given Pfizer’s massive size, its incredibly diversified portfolio of cash-flow generators, and its innovative pipeline, it can smoothen out the huge fluctuations that typically come with investing in biotechs.
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