Source: PaxForex Premium Analytics Portal, Fundamental Insight
Pharmaceutical behemoth Pfizer experienced substantial growth during the COVID-19 pandemic, emerging as a prominent vaccine producer. However, the windfall of billions in extra revenue and profits gained during this period has dissipated rapidly.
Presently, Pfizer finds itself in a position similar to its pre-COVID-19 status, with its shares trading at the lowest levels since the initial market crash induced by the pandemic in 2020. In the aftermath of a significant $43 billion acquisition, investors may wonder whether Pfizer's stock is a viable long-term investment.
A pivotal point in Pfizer's business occurred in 2022, marked by surpassing $100 billion in global sales, driven notably by COVID-19 products like Comirnaty (vaccine) and Paxlovid (oral tablet), contributing approximately $56.7 billion. Predictably, as the world transitions beyond the pandemic, revenues from these products are dwindling. The decline in revenue is evident, and Pfizer's free cash flow has fully retraced to levels seen before the vaccine era.
The company's financial outlook is projected to experience further decline this year. Management anticipates sales within the range of $58.5 billion to $61.5 billion, with earnings per share falling between $2.05 and $2.25. These figures encompass the contributions from the recently acquired Seagen (more details to follow). Notably, Comirnaty and Paxlovid sales are forecasted to be around $8 billion, illustrating the rapid decline in this business over the past 18 months.
Pfizer is navigating a unique phase after a four-year period dominated by the development and production of COVID-19 products, which initially became over half of its business but subsequently experienced a sharp downturn. While the recovery may take some time, proactive measures are being implemented by management. Pfizer aims to achieve cost savings of $3.5 billion annually, with a targeted reduction of $1 billion in 2023 and $2.5 billion this year.
In addition to addressing the challenges in its COVID-19-related ventures, Pfizer's non-COVID-19 business is exhibiting positive signs. Third-quarter revenue witnessed a 10% year-over-year growth in Q3 (excluding COVID-19 products). Utilizing the profits from its vaccine endeavors, Pfizer strategically invested $43 billion in the acquisition of Seagen, a pharmaceutical company with a pipeline predominantly focused on cancer treatments.
Pfizer's 2024 guidance anticipates revenue growth of 3% to 5% (excluding Seagen and COVID-19 products). When factoring in Seagen, the projected 2024 revenue growth extends to a range of 8% to 10%. However, the outlook for Pfizer's earnings growth appears less clear. Management foresees that Seagen's impact on earnings will be accretive by the third or fourth full year post-close, expected in 2027 or 2028.
The company's bottom line currently presents a complex scenario. While cost-saving initiatives and organic growth are underway, it may take a couple of years to counterbalance declining COVID-19 sales and redirect Pfizer's earnings trajectory. Analysts are adopting a cautious stance, with consensus long-term estimates indicating potential earnings decline at a low-single-digit rate, influencing market sentiment toward the stock.
Considering management's 2024 guidance, the stock trades at a price-to-earnings ratio (P/E) of 14, presenting challenges for a compelling case to buy shares. Pfizer's substantial debt of over $63 billion post-Seagen acquisition and a dividend that has surpassed its cash flow in the past year raise concerns about financial flexibility. Despite management's confidence in the dividend's sustainability, a 2.4% payout increase suggests Pfizer currently faces limited financial leeway.
While Pfizer's position may improve in the next three years, urging investors to buy today requires careful consideration. Investors may find more attractive stock opportunities elsewhere, especially for those seeking to fortify their pharmaceutical portfolios.
As long as the price is above 27.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 29.29
- Take Profit 1: 32.00
- Take Profit 2: 35.00
Alternative scenario:
If the level of 27.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 27.00
- Take Profit 1: 25.00
- Take Profit 2: 22.00
