Pfizer (PFE) the stock has been among the underperformers in the past 12 months. Even with the positive tailwind associated with the vaccine against COVID-19, the proportion has increased by only 12% over this period.
Given various business catalysts and forward valuation, it appears that PFE stocks are undervalued. While the broad markets are trading near all-time highs, Pfizer stocks are trading at an attractive future price-to-earnings ratio of 11.0. (To see Pfizer stock charts on TipRanks)
Let’s discuss the factors that make Pfizer worth considering.
Impact of the COVID-19 Vaccine on Pfizer’s Growth
For the foreseeable future, the company’s vaccine against COVID-19 will likely be the driver of revenue and cash flow.
For the current year, Pfizer expects $26 billion in revenue from BNT162b2. Proceeds are expected to come from 1.6 billion doses of the vaccine to be delivered by 2021.
Importantly, Pfizer is expected to have a production capacity of 3 billion doses of the vaccine by 2022. Depending on new contracts, the company’s revenue from BNT162b2 may be higher in the coming year.
Recently, Pfizer announced that the company has signed a deal with the Biovac Institute to manufacture and Spreading COVID-19 Vaccine doses within Africa. The company is also in the final stages of vaccine approval in India, another major market.
There are two other factors that could help Pfizer raise the vaccine’s topline.
First and foremost, the US FDA has approved the emergency use of the vaccine in adolescents. It seems likely that more countries will approve the use of the vaccine for the population under 18.
In addition, Pfizer CEO Albert Bourla believes that a third dose of the vaccine may be required 12 months after full vaccination.
Therefore, healthy cash flows from the COVID-19 vaccine segment are likely to continue for years to come.
Strong pipeline of drugs
The impact on growth due to pharmaceuticals losing their exclusivity in the coming years is one of the factors that has translated into a lower valuation.
It’s worth noting, though, that Pfizer has a deep pipeline of late-stage drugs. The pipeline is intended for conditions such as oncology, inflammation, immunology and rare diseases. To elaborate further: Pfizer currently has 10 candidates in the registration phase, 22 candidates in phase 3 and 37 drug candidates in phase 2.
Pfizer believes that excluding the impact of the contribution from the COVID-19 vaccine, the company can sustain 6% sales growth through 2025. If this expectation is correct, the stock appears undervalued.
Pfizer has led research and development costs of $9.8 to $10.3 billion for the current year. Given the focus on the pipeline, it appears that the markets are overestimating the impact of the loss of drug exclusivity.
Wall Street’s View of Pfizer
According to TipRanks analyst consensus rating, PFE stock comes in as a Hold with 1 Buy, 9 Hold and 1 Sell ratings assigned in the past three months.
As for price targets, the Pfizer’s average price target is $43.22 per share, which represents upside potential of about 3.7% from current levels.
Final remarks on Pfizer
For the first quarter of 2021, Pfizer reported operating cash flow of $4.5 billion. This implies an annualized cash flow of $18 billion. Cash flows are likely to remain robust in the coming years.
This will ensure that Pfizer has ample room to invest in the drug pipeline. At the same time, the company has an annual dividend payment of $1.56 per share. This translates into an attractive dividend yield of 3.8%.
With markets trading near record highs, it also makes sense to consider exposure to some low beta stocks. Pfizer, with a beta of 0.74, appears to be a good choice among defensive stocks.
Disclosure: Faisal Humayun had no positions (directly or indirectly) in the securities mentioned in this article as of the date of publication.
Disclaimer: The information in this document is for informational purposes only. Nothing in this section should be construed as a solicitation to buy or sell securities.