Pfizer Stock Report (PFE)

As requested by our member, Liviu - posting the full analysis here.

LINK TO DCF MODEL


Overview

Pfizer Inc. (PFE), the global biopharmaceutical giant responsible for one of the most widely used Covid-19 vaccines and numerous other treatments has underperformed dramatically in the last year on the stock market. Its share price has been slashed in half since the 2021 highs. Most of this dramatic re-pricing has had one source: fading demand for its COVID-19 vaccine Comirnaty and treatment Paxlovid, leading to YoY revenue growth of -41.5%. At the time of this writing, PFE is trading at similar price levels as in March 2020, at the beginning of the global pandemic. Pfizer has recently acquired oncology drug maker Seagen (SGEN) for $43 bln, accounting for almost 1/3 of its own market cap. The acquisition's heavy debt load is expected to weigh on earnings in the near term, having effectively DOUBLED PFE's prior long term debt . Many prominent drugs in its portfolio have patent expirations coming up, including Xeljanz in 2025 and Eliquis in 2026. Its own weight-loss drug Danuglipron did not advance into Phase 3 studies. In the latest quarter (ended in SEP'23), PFE recorded negative EBITDA of -1.6B.

On December 13 2023, PFE issued downbeat FY24 guidance for both EPS and revenues: 

2024 EPS: $2.05-2.25 versus expectations of $3.17 

2024 Revs: $58.5-61.5 bln versus expectations of 62.6 bln

Against this backdrop, one can understand why PFE's stock is languishing. The only question facing investors now: does PFE represent good value or is it a value trap?

In our model, we will use a blend of machine learning projections as well as analyst expectations.

Revenue Growth

In 2023, a -41.5% hit to the top line is very likely. Going further, we've projected a sluggish recovery for the next 4 years of revenue growth: 2.70% (in line with company guidance), then 5.40% 6.00% and 6.00%.

Gross Profit Margin

We've projected a 58.60% gross margin for 2023 and up to 73.30% as the SGEN acquisition starts to show up on the income statement meaningfully. 

Operating Expenses

Finally, we've modeled operating expenses to account for EPS guidance set by the company.

Shares Outstanding

We've kept the amount of shares available flat.

Valuation

Median valuation for PFE in the last 2 years is 6.4 EV/EBITDA. By comparison, PFE's peers have an average valuation of 18.4 EV/EBITDA. We will use PFE's own average in the model.

Ranking & Competition

PFE's peer group consists of companies like AbbVie Inc, Merck & Company Inc, Abbott Laboratories, Johnson & Johnson, and Bristol-Myers Squibb Company. All of these companies have performed better in terms of stock performance and are more expensive on all valuation metrics.

PFE ranks number 30 / 78 in Millennium Alpha's Pharma Screener (higher is better).

Fundamentals mapped to Technical Chart

  • Median Price Target: $36.70

  • MAX Upside: $43.60

  • MAX Downside: $30.83

  • Present day "Fair Value": $32.14

  • Compound Annual Growth Rate: 18%

Conclusion & Rating

Pfizer presents investors with a compelling value proposition, accompanied by a hefty dividend (north of 5% / year). Most headwinds appear to be priced into the stock at current levels, but the outlook is cloudy past 2024. PFE really needs a successful weight loss drug in their portfolio or any other tailwind that could boost the top line. Its latest guidance severely hampered stock performance in mid-December, but a recovery has taken hold in the meantime. Hopefully, this has set a floor for the stock price, near our designated lower trend-line. We would rate this stock a MODERATE BUY, given the very attractive valuation, but investors are "not out of the woods" just yet. In our portfolio, PFE would be a "trading position" with limited size and tight downside protection (stop loss).

Previous
Previous

/ January 15 / Weekly Preview

Next
Next

Portfolio Rebalance / 09 January