December 22, 2021

The Worst Mistake Pfizer Investors Can Make in 2022

It’s been a great year for Pfizer (NYSE: PFE) and its investors as the company’s share price is up more than 62% this year. Also, Pfizer has said it expects to record annual revenue of between $81 billion and $82 billion, which would mean growth of between 93% and 95%, year over year. Pfizer added that full-year adjusted diluted earnings per share (EPS) are expected to be between $4.13 to $4.18, up 142% to 144% compared to full-year 2020 EPS. The company appears to be on track to meet those targets. Through nine months, the company reported revenue of $57.6 billion, up 91% year over year, and adjusted diluted EPS of $3.27, up 82% over the same period last year.

Much of that rise has been due to Comirnaty, the COVID-19 vaccine the company developed with BioNTech. Pfizer, in its third-quarter report, said it will make $36 billion in revenue from the vaccine this year. It’s easy to look at those numbers and think the stock’s price is high and this might be as good as it gets, and cash out. That would be the worst mistake Pfizer investors could make next year.

Is the company likely to have the type of growth next year that it had this year? No, probably not. However, as we are beginning to see, COVID-19 is not going away anytime soon. And besides that, Pfizer is hardly a one-trick pharmaceutical giant.


Pfizer’s COVID-19 franchise will pay off for a while

As evidenced by the multitude of COVID-19 variants that have been popping up, the disease isn’t going away quietly. Last week, Pfizer’s Global President of Vaccines, Nanette Cocero, said on an investor call that the company expects COVID-19 to become an endemic disease (like the flu), possibly by 2024. This means there would be enough immunity from the virus in the population from prior infections and vaccines to keep hospitalization and deaths under control, along with transmissions. Although, that still means yearly shots would be needed to keep up with the various variants.

On top of that, Pfizer has a superior COVID-19 franchise. In addition to its vaccine, it has had great trial results for its newly developed COVID-19 antiviral pill, Paxlovid, which may be approved soon by the Food and Drug Administration (FDA). According to Pfizer, Paxlovid reduced the risks of hospitalization or death from COVID-19 by 89% when taken within three days of the onset of symptoms and 88% if taken within five days of the onset of symptoms.

Pending the FDA results, the U.S. government already has a deal in place to pay $5.3 billion for 10 million courses of Paxlovid, and that, of course, doesn’t even count the potential of international sales. Ultimately, some analysts have said Paxlovid could outstrip the revenue from Comirnaty and be a big money-winner for years for Pfizer.

Looking past the vaccine

Pfizer has put the money it has made off its COVID-19 drugs to good use, investing it in research and development and into some key acquisitions. The latest of which was just announced last week, with the company reporting a $6.7 billion deal to buy Arena Pharmaceuticals is in the works. Arena has a lead investigational drug, etrasimod, that is in several phase 3 studies for immune-mediated and inflammatory diseases.

On top of that, by jettisoning its Upjohn division (the spinoff was completed in November of 2020), Pfizer is looking forward to a future of higher margins and less debt.

Even without its COVID-19 franchise, the company will do fine because of its huge portfolio of drugs. Its oncology drugs have brought in more than $9 billion through nine months, up 16% year over year. Its hospital therapeutic division, which includes Epipen, has brought in $6.9 billion, up 21% compared to the same period in 2020. If you take out all of the revenue from its vaccines, Pfizer has made, through nine months, a reported $28.9 billion in revenue. This is still 13% more than it had made through nine months last year without the vaccine.

Looking at the company’s trailing price-to-earnings ratio (P/E) of 17.46, the stock remains undervalued compared to its peers, despite the stock’s surge this year. Of the five largest pharmaceutical stocks by market cap, Pfizer has the lowest P/E and most net income.

PFE PE Ratio Chart

PFE PE Ratio data by YCharts

Last but not least, a solid dividend

Pfizer just raised its quarterly dividend by 2.3% to $0.40, representing a yield of 2.6% with a cash dividend payout ratio of 29.6%, obviously leaving room for continued dividend raises. Pfizer has raised its dividend for 11 consecutive years, increasing it by 25% over the past five years. Considering how much cash Pfizer has this year, it could have easily raised its dividend more, but compared to the S&P 500 average yield of 1.3%, the company’s dividend is still a good deal for investors.

Instead of cashing in on Pfizer now, consider holding on for the next few years and enjoying the quarterly dividends in the meantime.

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