Stock Analysis & Ideas

Pfizer Stock: Way Too Cheap to Ignore Despite Recent Headwinds

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Pfizer stock has been on a downtrend in recent trading sessions over broader industry headwinds. With a solid COVID-19 business that may be more resilient than most expect, and a plan to diversify into new drugs, I think the stock is a compelling and misunderstood bargain.

Shares of Pfizer (PFE) have been steadily trending lower in recent weeks. The company has its hands in many pies with intriguing drugs that can help power sales growth for many years to come. However, the depressed valuation seems to imply that Pfizer will hit a growth funk once the COVID-19 pandemic winds down. After Pfizer’s latest earnings result, the stock is trading at a mere 9.5 times trailing earnings — well below the pharma industry average of nearly 23 times.

Going into a recession or slowdown, biopharma stocks should be in high demand. As one of the best-managed ones out there, Pfizer stock is more than deserving of a premier multiple.

Unlike COVID-19 vaccine rival Moderna (MRNA), Pfizer has something to fall back on once the demand for COVID-related products grinds to a halt. Still, Pfizer stock doesn’t get nearly as much respect as it deserves, possibly for its swollen market cap and history of lackluster growth.

After spinning off its growth-dampening off-patent Upjohn business, Pfizer has become the “growthiest” it’s been for many years. With many promising products slowly coming out of the drug pipeline and a COVID-19 business that may not be quick to dwindle, I remain incredibly bullish on Pfizer stock.

In my view, the single-digit price-to-earnings (P/E) multiple does not do the company justice.

COVID-19 Demand Could Stay Strong as Seasonal Outbreaks Loom

The windfall from Pfizer’s COVID-19 vaccine Comirnaty and its oral treatment Paxlovid has been quite substantial. With America reopening its doors, it seems like the pandemic is winding down. Still, just because things are the most “normal” they’ve been in this pandemic does not mean COVID-19 isn’t out there. Come the fall season, new variants are likely to return, and that could accompany robust demand for booster shots.

Currently, the BA.4 and BA.5 variants of Omicron could pose issues in the latter part of the year. Undoubtedly, the world is less likely to lockdown should such variants spark outbreaks, given the economic damage that could ensue. The solution to lockdowns is vaccines. More boosters in arms are vital to adapting in the COVID-19 era and living with the horrific disease.

Recently, Moderna stood by its original $21 billion sales forecast for COVID-19 vaccines, even amid order cancellations via the COVAX (COVID-19 Vaccine Global Access) program. The company took it a step further, with $3 billion in share buybacks in the cards.

Moderna seems incredibly confident that its shares are undervalued, and they may very well be, as the COVID-19 pandemic could pave the way for robust demand through year’s end.

At this juncture, it seems unlikely that the pandemic will end. We may very well be living in an era where seasonal boosters are the norm, with masks and other protocols in place during high case counts. Such an environment bodes well for the vaccine makers.

Moderna’s upbeat expectation for COVID-19 sales should eventually make its way to those ailing shares of Pfizer. For now, investors seem to be more rattled over the inflation-reduction act and its implication on drug pricing policy.

Pfizer’s Ready to Move Beyond the COVID-19 Era

Pfizer is ready to innovate so that it can thrive in an environment where its COVID-19 business sees sales dwindle to zero. Pfizer is a wonderful company I’ve previously described as one of the market’s most innovative. The company was first to unveil a safe and effective COVID-19 vaccine back in 2021 — a breakthrough that many of us have now taken for granted.

Further, Paxlovid is another innovative game changer, even though “rebound cases” or “Paxlovid rebounds” have caused many to view the drug in a less favorable light. Nevertheless, it’s not just Pfizer’s pipeline that has me intrigued as it looks to keep growth alive in the latter part of the decade.

Pfizer’s recent acquisition of migraine firm Biohaven Pharmaceuticals is an interesting deal, especially at a modest $12 billion price tag. Though patent losses are bound to happen over the coming years, Pfizer can more than offset such woes with newly-acquired drugs (think migraine pills Nurtec and Zavegepant).

Drug Price Policy a Major Headwind

The inflation-reduction act and drug pricing policy are major headwinds for all players in the biopharma space. It’s argued that lower drug prices would translate to a curbing of innovation. Though it’s unclear how much of a hit such policies will have on Pfizer, it seems like the recent pullback bakes in much of the damage. Pfizer shares are down around 20% from their all-time highs, just north of $60 per share.

In any case, I think the negative implications on the biopharma scene are overblown when it comes to Pfizer stock, which is already priced like some sort of value trap.

What is the Target Price for PFE Stock?

Turning to Wall Street, PFE has a Moderate Buy consensus rating based on five Buys and eight Holds assigned in the past three months. The average PFE price target of $57.42 implies 15.8% upside potential.

Takeaway – Don’t Count Pfizer Out of the Game

Pfizer faces quite a bit of uncertainty over the next few years. From drug policy changes to a potential dwindling in demand for COVID-19 vaccines and drugs, it certainly seems like the best days are behind the biopharma behemoth. Still, it’s a bad idea to count the company out of the game, given its growth focus and the potential for the COVID-19 business to reaccelerate. As long as the pandemic isn’t over, I don’t think the COVID-19 business should be discounted as much as it currently is.


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