(CTN NEWS) – Following a surge in demand during the pandemic, Pfizer (NYSE:PFE) entered a prolonged downtrend in December 2021.
Although the stock hinted at a potential recovery from October to December last year, it struggled to withstand continuous selling pressure, ultimately regressing close to pre-pandemic price levels.
Pfizer generated substantial cash flow from its COVID-19 vaccine and Paxlovid sales.
However, instead of resting on its laurels, the New York-based company chose to reinvest in its non-COVID-19 product portfolio and pursued growth through a series of mergers and acquisitions.
Navigating Challenges and Seeking Alternatives
While the pharmaceutical giant encountered some challenges in this endeavor, it remains apparent that it retains significant potential, even though the expected returns from these investments have yet to materialize.
A setback in Pfizer’s journey occurred when it had to suspend the production of a drug used to treat type 2 diabetes and obesity due to elevated liver enzyme levels.
Nevertheless, the company has an alternative drug in its pipeline for these conditions, known as Danuglipron, which is considered a promising substitute.
Up to this point, trials of Danuglipron have not encountered any issues. The results of these studies are anticipated to become available towards the end of the year, and it will be intriguing to observe the extent of the market it can capture.
Pfizer’s stock faced another blow in August when the company reported negative second-quarter earnings. The report disclosed a 54% decline in total revenue for the last quarter, primarily attributable to reduced sales of non-COVID-19 products.
This followed a 28% revenue decline in the preceding quarter, further intensifying concerns regarding pricing and performance.
Furthermore, Pfizer reported its earnings per share (EPS) as $0.64 in the last quarter, surpassing expectations by 15%. However, the revenue for the same quarter amounted to $12.73 billion, falling short of InvestingPro’s expectations by 5%, which cast a negative outlook.
Additionally, based on the latest quarterly data, the company revised its revenue forecast for 2023 from the previous range of $67 billion to $71 billion down to $67 billion to $70 billion.
What’s on the Horizon for Pfizer?
When we examine analyst predictions via the InvestingPro platform, it becomes apparent that 14 analysts have adjusted their forecasts downward for the upcoming Q3 report, slated for release on October 31.
As a result, the consensus estimate for this quarter stands at $4.88 billion, marking a 26% year-on-year decline.
Additionally, analysts have reduced the EPS forecast by 53%, settling at $0.63.
Taking a broader view of long-term projections, the year-end EPS is expected to reach $3.31, signifying a nearly 50% drop. While there is a moderate uptick expected in the coming years, the revenue projection for year-end hovers around $66.45 billion, a decrease of nearly 34%.
Although Pfizer’s revenue is anticipated to experience modest growth over the next three years, a less robust outlook prevails.
To counter this pessimistic outlook, the company appears to be focusing on establishing a stable and potentially growth-oriented model for the future, following a year of stagnation.
While the initial outcomes of these endeavors, such as a 5% increase in non-COVID-19 revenues, are not yet deemed sufficient, it remains critical for the company’s current investments to evolve in a direction that can bolster its revenue in the forthcoming periods.
In its most recent quarterly report, the company acknowledged the persistent uncertainty related to COVID. However, it anticipates that the rise in vaccination rates during the fall and winter months will positively impact its earnings until year-end.
Furthermore, the combination of flu and COVID vaccines is expected to provide ongoing positive contributions in both the medium and long term.
PFE Stock Represents Significant Undervaluation
Despite the uncertainties surrounding Pfizer’s revenue margins, it’s evident that PFE’s stock possesses substantial upside potential.
An assessment of the company’s stock, considering factors such as fair value analysis, analyst sentiments, and the price/earnings ratio, reveals that PFE is presently undervalued by a remarkable 47% in terms of its fair value potential.
Analysts’ evaluations indicate that the stock is currently trading at a discount of 22%. Furthermore, Pfizer stands out with a lower EV/EBITDA ratio compared to its industry peers and boasts a reduced enterprise value relative to its revenue.
Moreover, with a price/earnings ratio of just 8.8X, the stock price appears quite modest, suggesting that PFE may have reached its lowest valuation points and holds substantial growth potential.
In a comparative analysis with its peers and the industry, Pfizer’s market capitalization and dividend yield shine, while its one-year shareholder return and total return show a downturn.
Despite PFE currently being 61% below its one-year high, this figure aligns closely with its peers and the sector average, indicating that the challenges faced may stem from sectoral difficulties.
PFE’s Defensive Asset Appeal with a 5-Year Beta of 0.55
Another noteworthy aspect is PFE’s 5-year beta, which stands at 0.55. Based on the current beta, PFE stock can be considered a defensive asset within an investment portfolio, capable of displaying price movements that diverge from broader stock market trends.
Comparing Growth and Profitability
Now, let’s focus on a comparison regarding growth and profitability. Pfizer’s current growth indicators appear more challenging when compared to those of its industry peers.
While peers are experiencing a partial upturn in revenue growth, Pfizer is contending with a negative trend in this aspect.
Moreover, revenue and net profit forecasts for the next five years may not appear particularly promising at the moment. However, it’s crucial to note that Pfizer’s profitability metrics continue to outperform those of its industry and peer companies.
The company’s capacity to generate rapid profits from its operations, in contrast to its peer firms, should not be underestimated, especially given its current size and potential challenges in expanding its revenue.
This is due to the fact that long-term perspectives indicate that investments made through mergers and acquisitions continue to hold significant income potential.
Additionally, recent developments include FDA approval for a vaccine that is effective against the latest COVID variants for individuals aged 12 and older (harmonized with Eris).
This is another factor with the potential to boost the company’s revenue by year-end, contingent on demand.
Pfizer’s Strong Financial Health: A Closer Look
Pfizer’s impressive financial standing is reinforced by several key factors:
- Consistent Dividend Growth: The company has delivered twelve consecutive years of dividend increases, making it an appealing choice for long-term investors seeking reliable income streams.
- High Return on Invested Capital (ROIC): Pfizer boasts a commendable ROIC, reflecting its effective utilization of capital resources to generate returns.
- Low Share Price Volatility: Despite market fluctuations, Pfizer maintains a relatively stable share price, offering investors a level of predictability and reduced risk.
- Healthy Cash Flow: The company enjoys a robust cash flow, indicating its ability to efficiently manage its finances and cover operational needs.
In summary, Pfizer’s financial well-being is robust, with strong profitability and a favorable valuation. Its healthy cash position, growth potential, and stable price performance further enhance its investment appeal.
As a result of this assessment, it appears that Pfizer’s stock is presently trading at a 45% discount to its current price of $33.6. This suggests the potential for the stock to reach approximately $50 with relatively low uncertainty.
Moreover, the consensus among 23 analysts suggests that PFE could see short-term gains, potentially rising as high as $44.
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