Stronger-than-expected macroeconomic data combined with the Fed’s hawkish comments have increased investor anxiety. However, the pharma sector tends to be more resilient to economic downturns compared to others, as the demand for pharmaceutical products is generally not affected by macroeconomic conditions.
Hence, I think quality pharma stock Pfizer Inc. (PFE) might be a smart investment for under $50 amid market uncertainty. In addition, PFE has a track record of steady dividend growth and strong financials.
The recent employment report shows that the labor market is tight and job growth is stronger than expected, despite the Federal Reserve’s efforts to curb the economy and reduce inflation. The nonfarm payrolls in February rose by 311,000, above the estimated 225,000.
Moreover, the persistent inflationary pressures could push interest rate higher than expected.
The leading pharmaceutical giant exceeded analyst expectations in the fourth quarter of fiscal 2022. The company’s revenues for the fiscal year 2022 exceeded $100 billion, primarily driven by the success of its Comirnaty Covid-19 vaccine in developed markets, the launch of Prevnar 20, solid sales of the anticoagulant Eliquis, and the growth of the antiviral medication Paxlovid.
Moreover, PFE has projected its revenue for the fiscal year 2023 to be within the range of $67 billion to $72 billion. The company has also predicted that its adjusted EPS for the year will fall between $3.25 and $3.45.
PFE’s revenue and EBIT have increased at CAGRs of 34.9% and 68.6% over the past three years, while its net income and EPS have grown at CAGRs of 25.1% and 42.6%.
Furthermore, PFE’s history of paying dividends for 33 consecutive years and raising them for 12 consecutive years demonstrates its commitment to returning value to its shareholders. The company pays a $1.64 per share dividend annually, translating to a 4.11% yield. The company’s dividend has grown at a 5.2% CAGR over the past three years. Its four-year average dividend yield is 3.65%.
The stock gained marginally intraday, closing the last trading session at $39.90.
Here’s what could influence PFE’s performance in the upcoming months:
Positive Recent Developments
PFE has reportedly extended its COVID-19 vaccine contract with the European Union from 2023 to 2026. The contract extension will help Pfizer generate more revenue from the continued sales of its COVID-19 vaccine and provide greater certainty for the company’s revenue and earnings growth.
On March 13, 2023, PFE and Seagen Inc. (SGEN) announced a formal merger agreement in which PFI will acquire SGEN for $229 in cash per share, resulting in a total enterprise value of $43 billion.
SGEN is a global biotechnology company focused on discovering, developing, and selling groundbreaking cancer treatments. This acquisition is expected to bolster PFE’s capabilities in the field of cancer therapies.
On March 10, 2023, PFE announced that the FDA had approved ZAVZPRETTM (zavegepant), which is the first and only nasal spray with calcitonin gene-related peptide (CGRP) receptor antagonist that can be used for the immediate treatment of migraine in adults, with or without aura.
This is a noteworthy milestone for PFE as it marks the company’s achievement in bringing a new and innovative treatment option for migraine patients.
Robust Financials
During the fourth quarter that ended December 31, 2022, PFE’s revenues rose 1.9% year-over-year to $24.29 billion. Its adjusted income rose 44.2% from the prior-year period to $6.55 billion. Also, its adjusted EPS came in at $1.14, representing an increase of 44.3% year-over-year.
Moreover, its revenues for the fiscal year ended December 31, 2022, increased 23.4% year-over-year to $100.33 billion. Adjusted income rose 62.6% from the prior-year quarter to $37.72 billion, while its adjusted EPS rose 62.1% year-over-year to $6.58.
Discounted Valuation
In terms of forward non-GAAP P/E, PFE is currently trading at 11.70x, which is 37.9% lower than the 18.85x industry average. Its forward P/S multiple of 3.25 is 22.7% lower than the 4.20 industry average.
Also, the stock’s 9.49x forward EV/EBITDA is 28.3% lower than the 13.23x industry average, while its forward EV/EBIT multiple of 11.16 is 31.1% lower than the industry average of 16.19.
High Profitability
PFE’s trailing-12-month EBITDA margin of 43.88% is significantly higher than the 3.39% industry average. Its 66.02% trailing-12-month gross profit margin is 18.9% higher than the industry average of 55.54%.
Furthermore, the stock’s 0.53x trailing-12-month asset turnover ratio is 59.1% higher than the industry average of 0.34x. Additionally, PFE’s trailing-12-month ROCE, ROTC, and ROTA of 36.29%, 19.18%, and 15.91% are higher than the respective negative industry averages.
POWR Ratings Show Promise
PFE has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PFE’s Value grade of A aligns with the company’s discounted valuations.
The Quality grade for PFE is B, indicating strong profitability. This is consistent with the company’s ability to generate profits and maintain a healthy financial position.
PFE is ranked #17 out of 168 stocks in the Medical – Pharmaceuticals industry.
Click here to access PFE’s Growth, Stability, Momentum, and Sentiment ratings.
Bottom Line
PFE had an exceptional fiscal year 2022 and is planning to invest more to support the introduction of new products and research and development initiatives.
Moreover, the company is set to acquire SGEN for $43 billion, which will boost its position in oncology. Moreover, SGEN is expected to generate over $10 billion in risk-adjusted revenues by 2030.
Furthermore, Wall Street analysts expect the stock to hit $48.93 in the near term, indicating a potential upside of 22.6%.
The combination of PFE’s strong financials, attractive valuation, consistent dividend history, and resilience to economic downturns make the stock an ideal buy.
How Does Pfizer Inc. (PFE) Stack up Against Its Peers?
PFE has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Medical – Pharmaceuticals industry with an A (Strong Buy) or B (Buy) rating: Novo Nordisk A/S (NVO), Bristol-Myers Squibb Company (BMY), and Novartis AG (NVS).
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PFE shares fell $0.34 (-0.85%) in premarket trading Wednesday. Year-to-date, PFE has declined -21.42%, versus a 2.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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