Pfizer (PFE) is one of the world’s largest research-based, international biopharmaceutical companies.
The company’s main source of revenues is from manufacturing and selling biopharmaceutical products, and to a lesser extent, from alliance arrangements, under which it co-markets products discovered or designed by third parties.
The company’s leading pharmaceuticals include Eliquis, Ibrance, Prevnar 13, Enbrel, Chantix, Sutent, Xtandi, and Xeljanz, among others. As a result of the ongoing pandemic, Pfizer is also supplying its own vaccine against COVID-19 in cooperation with BioNTech (BNTX).
Pfizer shares have been performing well over the past year, and while the stock has corrected slightly along with the rest of the market lately, it may have more room to run driven by the company’s growing financials. Pfizer should keep producing robust numbers powered by its diversified pharmaceutical portfolio and vaccines.
The stock’s dividend should equip investors with a well-covered stream of payouts with the possibility for it to grow in the coming years. Pfizer also appears to be relatively reasonably priced. I am neutral on the stock.
Recent Results
Driven by favorable conditions, Pfizer’s latest results came in quite strong.
Company-wide revenues increased 134% to $24.1 billion. The tremendous increase in sales was driven by higher vaccine revenues, which grew to $14.6 billion against just $1.7 billion versus the prior-year period.
One could assert that vaccine sales illustrate a one-off opportunity for Pfizer that is going to gradually fade out, eventually. That, there are two things to remember. First, a substantial part of the world’s population is still unvaccinated. Hence, it’s not like Pfizer will pause vaccine deliveries in the short-to-medium term.
Then, booster shots are likely to create a short to medium-term recurring stream of vaccine cash flow over the next few years for Pfizer, particularly if the pandemic persists.
In any case, Pfizer’s general performance should remain rock-solid anyhow of its vaccine revenues. Apart from the revenue growth resulting from the vaccine, sales growth, in general, was great. Oncology, Hospital, and Rare Disease revenues grew 12%, 32%, and 16% during the quarter, respectively.
Is the Valuation Fair?
While the company’s performance has been strong, following a relatively strong rally over the past year, the current upside on Pfizer may be restricted. Management hiked its adjusted diluted EPS guidance to a range of $4.13 to $4.18, which implies a P/E of around 12.9 at the stock’s current levels.
While the multiple may seem attractive, investors should take Pfizer’s current valuation with a grain of salt, as its financials are boosted by the vaccine. However, I still have to say it feels inexpensive even if vaccine sales were to soften in a few years from now. So overall, I would call it fair.
On another note, Pfizer has more than enough room to grow its dividend, whose annualized rate of $1.60 suggests it is well-covered by the underlying net income. This could be a bullish catalyst considering income-oriented investors have historically appreciated the company’s growing dividends.
Wall Street’s Take
Turning to Wall Street, Pfizer has a Moderate Buy consensus rating, based on nine Buys and 10 Holds assigned in the past three months. At $60.06, the average Pfizer price target implies 11.7% upside potential.
Conclusion
In my view, Pfizer is one of the better picks in the pharmaceutical industry. The stock offers a substantial yield, and with financials likely to continue at very strong levels boosted by vaccine sales, it may have more room to run. The stock’s valuation seems to already be pricing in future declines on vaccine revenues. Thus, PFE appears somewhat fairly valued at its current levels.
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