Since the onset of the COVID-19 pandemic, pharmaceutical stocks like Pfizer (PFE), Moderna (MRNA) and Novavax (NVAX) have been in the limelight. With strong top-line growth and cash flow upside from the vaccine against COVID-19, PFE stock has trended higher by 33% in the last 12-months.
If there was one stock to pick from the COVID-19 vaccine play, I would look at Pfizer. This column will discuss the reasons for this bullish view on the company.
Pfizer stock currently trades at a price-to-earnings-ratio of 12.9. Furthermore, for 2022, Pfizer has provided an earnings per share guidance of $6.45. At $50.18, PFE stock is trading at a forward P/E of 7.8.
Clearly, valuations are attractive for a company that has growth visibility in the next few years.
Vaccine-Driven Growth
For 2021, Pfizer reported revenue of $81.3 billion. On a year-over-year basis, revenue surged by 92%. This was primarily due to the impact of the COVID-19 vaccine sales. For the current year, the company expects revenue growth of 23% to $100 billion. Therefore, the vaccine will continue to drive growth and cash flow upside.
Research has also indicated that more than 100 million people globally are suffering from long-COVID. This typically includes symptoms like chest pain and fatigue, among others. There are some initial evidences that Pfizer’s oral COVID-19 therapy is helpful in the treatment of long-COVID. If this holds true, the oral therapy is likely to be another revenue upside catalyst.
On the flip-side, it was recently reported that there is a gradual decline in demand for booster shots. With a less severe Omicron variant and sub-variant, the appetite for booster shots in developed countries has diminished. Some research also indicates that too many booster shots can weaken the immune response.
As a matter of fact, the U.S. Food and Drug Administration has also opined that frequent COVID-19 booster shots are not sustainable. The FDA has emphasized on the need for a long-term strategy for protection against the virus.
Beyond 2022, there is likely to be a significant decline in revenue from COVID-19 vaccine. However, for Pfizer investors, the good news is that the company does not depend on a single drug or vaccine for growth.
Deep Drug Pipeline
If there was a single reason to be bullish on Pfizer’s growth beyond the COVID-19 vaccine, it’s its deep clinical pipeline.
As of February 2022, Pfizer reported 10 drugs in the registration stage, and 27 drug candidates in Phase 3 of trials. The company also has 52 drug candidates in the first two phases of clinical trials.
As these drugs enter the market, there will be a positive impact on growth. It’s also worth mentioning here that Pfizer ended 2021 with cash and equivalents of $31 billion. Last year, the company also reported operating cash flow of $32.5 billion.
The key point is that the company has ample financial flexibility to invest in accelerating trials and deepening the pipeline. This point is underscored by the fact that Pfizer has guided for $11 billion in research and development expenses through 2022.
Another factor that’s worth discussing is the company’s inorganic growth strategy. Recently, Pfizer announced the acquisition of ReViral, which is a clinical-stage biopharmaceutical company. The latter is developing antiviral therapeutics that target respiratory syncytial virus.
In the last two quarters, Pfizer has announced three acquisitions. Given the cash buffer, it’s likely that the company will continue to pursue acquisitions to deepen the product pipeline.
Wall Street’s Take
Turning to Wall Street, Pfizer has a Moderate Buy consensus rating, based on six Buys and eight Hold ratings assigned in the past three months. The average Pfizer price target of $59.62 implies 18.8% upside potential.
Concluding Views
In the coming quarters, the COVID-19 vaccine revenue will continue to boost the company’s cash flows. Beyond this period, Pfizer will benefit from its deep pipeline of drug candidates. Of course, growth is likely to moderate on a relative basis. However, the stock looks inexpensive at a forward P/E of less than 10.
PFE stock is also attractive for income investors. Currently, the stock offers a dividend yield of 3.2%. Considering the cash flow potential, dividend growth seems probable in the next few years. Additionally, Pfizer continues to pursue share repurchases, with a remaining authorization of $5.2 billion.
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