Pfizer, Inc. (NYSE:PFE), one of the largest pharmaceutical companies in the world, has come under pressure this year, resulting in the company losing 28% of its market value. Although the company is facing challenges, its future is not as bleak as many investors fear.
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As evident from Pfizer’s second-quarter earnings, the company is suffering from a notable decline in revenue resulting from the shrinking demand for its COVID vaccines and treatments. Still, although short-term challenges will persist, Pfizer seems attractively valued considering its long-term prospects. I am bullish on Pfizer, as I believe the company will return to growth in the foreseeable future.
Pfizer’s Short-Term Challenges
Pfizer’s short-term challenges stem from the lackluster performance of Comirnaty, the COVID vaccine developed in partnership with BioNTech SE (NASDAQ:BNTX), and Paxlovid, a prescription medication used to treat moderate COVID-19 symptoms.
In the second quarter, Pfizer’s revenue declined by a staggering 54% year-over-year to $12.7 billion. Comirnaty revenues declined by 82% year-over-year to $7.3 billion, while Paxlovid revenues declined by 98% year-over-year to $8 billion. The struggles faced by these COVID medications do not come as a surprise, given that pandemic-related deaths have substantially decreased recently.
The biggest challenge Pfizer faces in the short term is the uncertainty regarding revenue contributions from its COVID portfolio. With the fall respiratory season upcoming, revenue from COVID treatments may once again increase in the next couple of quarters, but the company may not want to spend R&D investments on its COVID portfolio, given the reduced mortality risk of the virus today.
From a stock market performance perspective, Pfizer faces the challenge of investors comparing current fiscal year revenue with the previous fiscal year, which is likely to dampen the investor sentiment toward the company, as Pfizer reached record high revenue last year aided by the success of its COVID-19 treatments.
Long-Term Opportunities
Excluding the impact of the COVID portfolio, Pfizer’s revenue increased by 5% in Q2, highlighting the strength of the company’s core product portfolio. Pfizer still has a long runway to grow, which is evident from a few factors.
First, Pfizer is aggressively launching new products to expand into new markets, paving the way for stellar growth. Last November, Pfizer revealed a new growth plan to secure growth through 2030. At the time of unveiling this plan, Pfizer discussed how the company plans to launch at least 19 new products or indications in the first 18 months of launching the new 2030 growth strategy.
During the second-quarter earnings call a week ago, CEO Dr. Albert Bourla confirmed that the company is more than halfway to achieving this goal. In the first six months of 2023, Pfizer has received regulatory approvals for six new products and the company launched four new products into the market. Another six approvals are expected in the second half of this year, which should push Pfizer toward achieving its goal of 19 new products by the end of 2024.
Second, Pfizer has a robust drug pipeline, which boosts confidence in the company’s ability to grow in the foreseeable future. Pipeline drugs of the company include medications for breast cancer, various forms of blood cancers, hemophilia A and B, and autoimmune disorders.
The company has already received FDA approval for Litfulo, which is a treatment developed to combat severe alopecia areata in adults. These groundbreaking products will hit the market in the next few years, assuming regulatory approval, opening new growth avenues for the company.
Third, Pfizer ended the quarter with a massive cash pile of $19.9 billion, enabling the company to expand aggressively through acquisitions. The highly-successful COVID treatments developed by the company led to a massive cash windfall, and Pfizer is strategically investing this cash pile to increase shareholder wealth.
For instance, the firm recently announced the acquisition of Seagen Inc. (NASDAQ:SGEN) for $43 billion to expand into oncology, and this deal is expected to bring in more than $10 billion in “risk-adjusted” revenue in 2030. This is likely the first of many acquisitions to come in the future.
Is Pfizer a Buy, According to Wall Street Analysts?
Pfizer is currently valued at a forward price-to-earnings ratio of 10.8 compared to the healthcare sector median of 20. Also, its quarterly dividend of 41 cents per share yields an attractive 4.65% today. Considering this, it does not come as a surprise that Wall Street analysts are bullish on Pfizer. Based on the ratings of 18 analysts, the average Pfizer stock price target is $44.44, which implies upside potential of 24.7%.
Takeaway: Ignore the Noise
The market, at times, can be short-sighted. This short-sightedness offers long-term-oriented investors an opportunity to exploit mispriced bets. Today, with the market focusing on the short-term impact of declining revenue from Pfizer’s COVID-19 product portfolio, the company’s valuation seems detached from its long-term economic reality.
Pfizer has a long runway to grow, is flush with cash that could be used to expand its horizons, and pays a handsome dividend. I believe the company is too cheaply valued to ignore today.
