Source: PaxForex Premium Analytics Portal, Fundamental Insight
Pfizer has underperformed the S&P 500 in 2020. The same situation was one year before, as well as in 2017 and 2016. You may have noticed that we didn't mention 2018, which was the only year in the last five years when a major pharmaceutical company managed to outperform the broad market index. If looking at historical returns was the best way to foretell coming profits, Pfizer's prospects wouldn't be so good.
However, there is a reason why the investment world holds so many disclaimers cautioning that "past performance may not be indicative of future results." Things change. This is especially true when the underlying business dynamics have changed as much as Pfizer has. So what are the prospects for Pfizer stock? Probably much better than in recent years.
One of the main reasons to be more confident about Pfizer is that its development is no longer stunted by legacy drugs with declining sales. In particular, Lyrica, with its patent expiring in 2019, has become a burden on the company.
Now Lyrica and some other outdated Pfizer drugs are owned by Viatris. This new company was formed in November through Mylan's merger with Pfizer's Upjohn division, which had served as a home for its legacy products.
With the Viatris deal, Pfizer expects risk-adjusted revenue growth of at least 6% a year over the next few years. The company expects adjusted earnings per share to grow at least 10% annually over the same period.
But there is better news: these forecasts do not cover the influence of Comirnaty, the COVID-19 vaccine developed in partnership with BioNTech. Pfizer CFO Frank D'Amelio said during the company's fourth-quarter conference call that vaccine sales should be about $15 billion this year. That estimate, however, was based solely on current supply agreements.
Since then, the U.S. government has raised its order for Comirnaty by 100 million doses. Even larger supply deals will likely be made shortly. Pfizer shares gross profits on the vaccine 50-50 with BioNTech. Nevertheless, the big drugmaker will undoubtedly get a huge boost this year in the top and bottom lines from its COVID-19 vaccine.
So will everything be so favorable for Pfizer? Certainly not. There are several areas of anxiety for the company and its shareholders.
Pfizer had hoped that its breast cancer drug Ibrance would get regulatory approval as adjuvant therapy for use in patients with early-stage breast cancer. After two failed clinical trials last year, that will not happen.
The autoimmune disease drug Xeljanz has been among Pfizer's most effective drugs in recent years. But in January, the company published the results of a post-marketing safety study that were very discouraging. Study participants who took Xeljanz had significantly higher rates of cardiovascular disease and cancer than those who took TNF inhibitors. (The most popular drugs in this class are Humira and Enbrel.)
So far, it's too early to tell what effect the Xeljanz fiasco will have on the safety study. However, the increase in sales of the drug may not be as strong as previously expected.
Still, perhaps the biggest question for Pfizer is how long the Comirnati-related hype will last. If the COVID-19 vaccine protects against infection for two years or more, Pfizer's annual revenues won't be as high as they were this year. The company could also face increased competition from other vaccine manufacturers as more vaccines are approved and overall production volume increases.
So what does all this mean for the stock of this major pharmaceutical giant over the next five-ten years? Pfizer stock is projected to be well-positioned for higher overall returns than the S&P 500.
Comirnaty is likely to remain a major cash generator for years to come, and other key drugs in the Pfizer line, including the blood thinner Eliquis and the transthyretin-mediated amyloid drug Vyndaqel, will continue to deliver solid sales growth.
We can also expect good news from the Pfizer product line. Over the past five years, the company has achieved an overall clinical trial success rate (which measures what percentage of new molecular entities have successfully passed clinical trials and received regulatory approval) of 21%. This rate has risen to an industry average of 8%.
Of course, total profits include dividends. Undoubtedly, Pfizer's dividend will remain one of the most winning in the healthcare sector.
Pfizer will not generate the kind of rapid growth that aggressive investors seek. Nevertheless, the stock will be a good choice for conservative investors.
While the price is above 34.10, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 35.00
- Take Profit 1: 39.30
- Take Profit 2: 43.0
Alternative scenario:
If the level 34.10 is broken-down, follow the recommendations below.
- Time frame: D1
- Recommendation: short position
- Entry point: 34.10
- Take Profit 1: 32.60
- Take Profit 2: 29.70
