In a year marked by soaring valuations for pharmaceutical companies riding the wave of weight-loss medication enthusiasm, Pfizer (PFE) has emerged as a potential diamond in the rough for income-seeking investors. The pharmaceutical giant's recent progress on its once-daily oral obesity drug, coupled with its attractive valuation and hefty dividend yield, make it a compelling investment opportunity in the healthcare sector.
Pfizer's shares surged nearly 3% in premarket trading on Tuesday, July 11, following the company's announcement of encouraging data from an ongoing early-stage trial of its obesity pill, danuglipron. This news comes as a welcome development for Pfizer, which has been striving to penetrate the lucrative anti-obesity medication market and compete with well-established weight loss injections, like Novo Nordisk's (NVO) Wegovy and Eli Lilly's (LLY) Mounjaro.
Despite facing serious fundamental challenges - such as declining sales of its COVID-19 products, which plummeted from a peak of $17 billion in Q2 2022 to just $2.4 billion in Q1 2024 - Pfizer has maintained its position as an attractive option for dividend investors. Furthermore, Pfizer's valuation metrics present a compelling case for bargain hunters.
Analysts project the anti-obesity drug niche could grow to around $100 billion by 2030, as more people seek medical treatments to manage their weight. Pfizer aims to capture a significant share of this burgeoning market with danuglipron, which belongs to a class of drugs called GLP-1 receptor agonists that have shown remarkable efficacy in reducing body weight - and with a patient-friendly oral formulation, the drug could be warmly received.
Let's examine Pfizer's developments, financials, and market potential to evaluate its investment appeal.
Decoding Pfizer's Market Pulse and Value Proposition
Valued at $163.8 billion, Pfizer (PFE) is a global pharma giant that operates through two key segments: biopharmaceuticals and business innovation. The company's focus on developing and commercializing innovative medicines and vaccines has positioned it as a leader in the pharmaceutical industry.
However, Pfizer's stock has underperformed over the past year. PFE is down nearly 20% over the last 52 weeks, and the shares are just barely positive for 2024.
The stock has made a 15% recovery from its late-April lows, but is still significantly below its peak during the height of the COVID-19 pandemic - by about 53%, to be specific.
And from a valuation standpoint, Pfizer looks like a bargain. With a forward P/E of 12.21, price/sales of 2.71, and a P/E to Growth ratio of 1.28, the stock seems undervalued relative to its growth prospects. Analysts argue that this lower valuation might not fully reflect Pfizer's potential, with discounted cash flow models estimating the stock's fair value at $75.06 - nearly three times its current price.
Pfizer's Q1 2024 earnings report, released at the start of May, was a mixed bag. The company reported revenues of $14.9 billion, down 20% year-over-year, mainly due to reduced COVID-19 product sales. Diluted earnings per share (EPS) dropped to $0.55 from $0.97 in Q1 2023.
However, adjusted diluted EPS of $0.82 beat analyst expectations by 61% as non-COVID products grew by 11% operationally, showcasing Pfizer's resilience.
Pfizer's Formula for Sustainable Growth
Pfizer scored a big win in late April, with the European Commission giving a thumbs up to EMBLAVEO, its new antibiotic for tough-to-treat infections. It's the first of its kind in the EU, and could be a real game-changer - not just for patients. but also for Pfizer's earnings in Europe.
In addition, Pfizer and BioNTech are staying on their toes with COVID-19. The EU's CHMP has given them a positive opinion for their updated vaccine that targets the Omicron JN.1 variant. This shows they're quick to adapt as the virus changes, which could keep seasonal demand for their COVID and other vaccine products rolling, even as the urgency of the pandemic continues to fade.
On the dividend front, Pfizer continues to reward shareholders generously. They've just announced a $0.42 dividend for the third quarter of 2024, set to hit shareholder accounts on Sept. 3. This isn't just another quarterly dividend; it's their 343rd in a row!
With a juicy 5.81% yield, Pfizer looks pretty tempting for folks who like their stocks with a side of regular income.
What the Experts See in Pfizer's Future
For 2024, Pfizer aims for revenues between $58.5 and $61.5 billion, flat to slightly higher than 2023 levels. They've also bumped their adjusted diluted earnings per share (EPS) guidance to $2.15–$2.35, reflecting confidence in their cost-saving strategies and non-COVID product performance.
So, what do the Wall Street gurus think? It's a mix of optimism and caution. Out of 21 analysts, the consensus is a "Moderate Buy." Breaking it down, 8 analysts are all in with a "Strong Buy," 1 is going for a "Moderate Buy," and 12 are playing it safe with a "Hold."
The average price target for PFE is $33.37. Based on Monday's close, that's a potential upside of about 15%.
Notably, Goldman Sachs reaffirmed its "Buy" rating after earnings with a price target of $31, citing strong performance from products like Padcev and Vindaqel. BMO Capital also reiterated its "Outperform" rating and raised its target from $33 to $36, reflecting optimism about Pfizer's focus on oncology, RSV, and hematology.
Plus, institutional investors are big on Pfizer, owning about 68% of the company's shares. This high level of institutional ownership shows strong confidence from major financial players, which is a good sign for retail investors. The largest shareholders include The Vanguard Group, Inc., BlackRock (BLK), and State Street Corp (STT).
The Bottom Line on PFE Stock
In a nutshell, Pfizer's blend of innovative breakthroughs, solid financial health, and a generous dividend yield make it a bargain-priced gem in the pharma dividend space. With promising new treatments on the horizon, a robust dividend history, and favorable analyst projections, Pfizer offers a compelling case for investors looking to snag a reliable income-generating stock while it's still attractively priced.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
