Pfizer stock (PFE) has had a rough ride over the past year, declining by around 7% and underperforming the broader market by a wide margin. This slump extends a series of losses, leaving the stock trading near 56% below its 2022 highs. On the one hand, the prolonged descent is tied to a mix of fading COVID-19-related tailwinds and shifting dynamics in some of its markets, among other factors. However, this lagging has resulted in a silver lining for income investors, as the stock’s yield has climbed to a lofty 6.6%. Along with Pfizer’s prospects for further dividend growth, the stock has evolved as an appealing income play. Hence, I am bullish on PFE stock.
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Why Has Pfizer Stock Been on a Prolonged Decline?
If you haven’t been following Pfizer recently, it’d be easy to look at the stock’s long decline and think the company’s facing some serious hurdles, leaving you wondering if it’s even worth your attention. So, let me quickly walk you through what’s actually happening so it all makes more sense. To begin with, Pfizer’s decline from its 2022 highs can be mainly attributed to the weakening demand for its COVID-19 vaccine, Comirnaty, and its antiviral treatment, Paxlovid.
In 2022, these products contributed massively to Pfizer’s revenue as the company rode the wave of global vaccination efforts. Yet, as vaccination rates plateaued and COVID-19 infections transitioned to a more endemic phase, their sales naturally eased.
Throughout 2023 and into 2024, the shift from government purchasing agreements to a commercial market model further weighed on revenue from these products. Sure enough, Pfizer maintained its market leadership with Paxlovid. However, it still saw lower demand due to stabilizing COVID-19 case numbers. Also, increased competition in the pharmaceutical space, such as the launch of generics and biosimilars for key products like Ibrance, put pressure on top-line sales. Some other headwinds include challenges in integrating its Seagen acquisition, which will likely prove to be a waste of money.
For these reasons, you can see why investors have been dumping the stock continuously in recent years.
Pfizer’s Profitability Supports its Dividend Investment Case
Despite these challenges, Pfizer’s profitability continues to support its dividend and offers the potential for future increases, which is the foundation of my bullish outlook on the stock. I think Pfizer’s Q3 results highlighted this strength. Revenues were $17.7 billion, up 32% year-over-year. Excluding the contributions from Paxlovid and Comirnaty, revenues grew 14% operationally, driven by solid performance in oncology, immunology, and rare diseases. Key drivers included growth from Vyndaqel, Xtandi, and Nurtec ODT.
Pfizer’s adjusted EPS also showed notable improvement, reaching $1.06 in the quarter, reversing the loss from last year. Furthermore, for the first nine months of 2024, adjusted EPS grew 43% year-over-year to $2.48. These numbers prompted management to raise their full-year 2024 guidance, expecting adjusted EPS to land between $2.75 and $2.95. I think this guidance should raise investors’ confidence in Pfizer’s dividend safety. The midpoint of this range comfortably covers the current annual payout rate of $1.72.
Just to remind you, Pfizer has increased its dividends for 15 consecutive years. In the meantime, at 6.6%, the dividend yield stands at a multi-decade high. Now, combine these factors with the fact many catalysts could drive further earnings growth and, thus, dividend increases, and you can see why I like Pfizer as an income play. Specifically, this outlook is backed by continued demand for the company’s oncology portfolio, potential expansion of its respiratory vaccine pipeline, and cost efficiencies from restructuring initiatives. Regulatory milestones recently, like the expanded approval for Pfizer’s Abrysvo RSV vaccine, also support this viewpoint.
As a side note, the midpoint of management’s guidance also indicates that shares are trading at just 9.3 times this year’s expected earnings, which means investors should have a wide margin of safety against additional downside.
Is PFE Stock a Buy, According to Analysts?
Wall Street analysts also appear quite optimistic about Pfizer’s prospects, with the stock now featuring a Moderate Buy rating comprised of eight Buys, ten Holds, and one Sell assigned over the last three months. At $31.56, the average Pfizer stock forecast implies a 19.73% upside potential from current levels.
For the best guidance on buying and selling Pfizer stock, look to Vamil Divan. He is the most accurate and profitable analyst covering the stock (on a one-year timeframe), boasting an average return of 5.45% per rating and a perfect success rate score of 74%.
Summing Up
In summary, Pfizer stock has experienced a prolonged decline in recent years, driven by the diminishing impact of COVID-19 tailwinds and increasing competitive pressures. However, the stock’s lofty dividend yield and improving profitability make it an interesting option for income-oriented investors. With a 6.6% yield, strong revenue growth in key areas like oncology and immunology, and a solid history of dividend increases, Pfizer has the potential for further income growth. Therefore, for those seeking a high yield and continued dividend growth prospects, Pfizer seems like a solid pick.
