Pfizer (PFE) stock has fallen quite a long way since peaking back in December 2021 at over $59 per share. The COVID-19 vaccine boom helped propel shares to highs not seen in decades.
Fast forward to today, and the stock is fresh off a vicious 46% implosion from those highs. It's hard to believe, but shares are right back to where they were back in 2020, well before Pfizer unveiled its mRNA vaccine to combat the COVID-19 pandemic.
With COVID-19 cases climbing again - just in time for winter - Pfizer stock may be in a spot to get a shot in the arm again. However, even with new strains and the potential for another COVID winter, it seems like vaccine and pandemic fatigue are too great to have any material impact on those sagging shares of Pfizer.
At multi-year lows of around $32 per share, the stock's dividend yield now stands at an impressive 5.08%. That's a bountiful yield that could beckon dip-buyers and income investors alike. But just as there's the potential for deep value, there are deep concerns that the firm may continue to be a value trap for investors as earnings sink and the firm begins to fall off a patent cliff.
Pfizer Looks to Soften the Fall From its Patent Cliff
Now, Pfizer stock has already fallen off a technical cliff well ahead of its looming patent cliff. The company has been acquiring its way to new cash-generative drugs to help alleviate the earnings erosion to come as the floodgates are opened to generic competitors as some of its most essential patents expire. In recent quarters, the company has been very active on the M&A front. In fact, you could say it's been on quite the spending spree!
The firm acquired Seagen (SGEN) (Seattle Genetics) for $229 per share in a cash deal ($43 billion altogether), while plowing tens of billions in other smaller deals. Pfizer's management team expects such deal-making will help dampen the blow of the coming patent cliff, with approximately $25 billion in sales to be generated by 2030. As more deals come in, the size of that “cliff” may get less steep. Still, the price of admission into recent acquisitions may be a tad concerning.
Typically, companies willing to pursue acquisitions with a timeline in mind may not be able to get the best bang for their buck. With the patent cliff ahead, Pfizer needs to get a handful of deals completed before earnings have a chance to really crumble.
While Seagen is a wonderful firm with a promising cancer franchise and a strong pipeline of antibody-based conjugates, I can't say I'm a massive fan of the price Pfizer paid. The reaction in Pfizer shares seems to suggest investors aren't huge fans of the deal, either. At this juncture, synergies are expected to be around $1 billion. But unless Seagen's earlier-stage treatments show greater promise, it's hard to view Seagen as the sole cure to its earnings ailments.
In short, I'm not so sure Pfizer can buy its way to a soft landing as it falls off its cliff.
What About Internal Innovations?
After an underwhelming second quarter (earnings per share of $0.67 vs. $0.57 consensus on $12.7 billion in revenue), Pfizer emphasized its growth focus. Though M&A has been the name of the game of late, the company has also committed a great deal of its COVID-19 profits toward internal innovations ($7.8 billion in R&D for the first nine months of 2022), some of which may be able to pay off sooner rather than later.
Most notably, the company's pentavalent meningococcal vaccine candidate could receive approval from the FDA as soon as October 2023. If approved, the vaccine could be quite the needle-mover for Pfizer and help the shares put in some sort of bottom.
For now, I think Pfizer stock is more of a wait-and-see type of play. Recent executive leadership changes in the R&D division don't give me a huge vote of confidence that Pfizer can turn the tide. Personally, I would not chase the stock for its dividend, even with the yield topping 5%.
The Bottom Line
Pfizer stock has been quite the value trap for dip-buyers. Now that the yield has swelled above 5%, I'm not inclined to catch the falling knife. The patent cliff could prove too steep. However, the firm is doing everything it can to offset the pressures organically and via M&A. Also, don't expect a COVID-19 resurgence to provide much, if any, relief to shares.
On the date of publication, Joey Frenette 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.
