Down 14.5%, Is Pfizer Stock a Screaming Buy?

As the foremost U.S. inventory indices fell into bear territory in 2022, massive pharma shares rapidly grew to become an oasis for nervous buyers — in lots of instances due to their largely recession-proof enterprise fashions, dependable money flows, and reliable quarterly dividends.

AbbVie (ABBV -0.43%), Bristol Myers Squibb (BMY -0.58%), Eli Lilly (LLY -0.47%), and Merck (MRK 0.67%) all trounced the broader markets final 12 months:

LLY Total Return Level information by YCharts.

One of many uncommon exceptions to this development was Pfizer (PFE -0.55%). Final 12 months, the drugmaker’s shares sank by 10.4%, regardless of the corporate’s stellar earnings development over the course of the 12 months. Sadly, Pfizer’s inventory hasn’t been capable of shake off this downward momentum with the change of the calendar 12 months. The pharma titan’s shares, in actual fact, have dropped by one other 14.5% through the first 4 weeks of 2023.

Is it time to catch this falling knife? Let’s dig deeper to search out out.

Pfizer’s valuation, dividend, and growth capability are purchase indicators

Pfizer’s breathtaking nosedive over the prior 13 months is not all dangerous information — a minimum of not for cut price hunters. On the valuation facet, the pharma titan’s shares at the moment are buying and selling at a extremely compressed price-to-earnings (P/E) ratio of 6.7. The business common for this key valuation metric, in contrast, presently stands at 24.2. What’s extra, Pfizer’s inventory hasn’t been this low cost, from a P/E standpoint, since 2014.

The drugmaker’s declining share worth has additionally resulted in its dividend yield ballooning to a notable 3.75% on an annualized foundation. Inside the large-cap pharmaceutical area, the common dividend yield at the moment sits at 3.27%. Pfizer inventory thus gives one of many business’s extra beneficiant yields.

Due to its COVID-19 vaccine Comirnaty and antiviral drug Paxlovid, Pfizer additionally has loads of monetary firepower for enterprise growth (BD). Regardless of executing a number of current offers for high-value medicines just like the migraine drug Nurtec, the sickle cell illness remedy Oxbryta, and the ulcerative colitis candidate etrasimod, Pfizer nonetheless had roughly $36 billion in its coffers on the finish of the third quarter of 2022.

Because of this, the drugmaker can select to proceed its string-of-pearls BD technique, or it might conceivably pursue a single massive acquisition. Pfizer, in brief, has choices on the BD entrance to create worth for shareholders.

Pfizer’s near-term earnings potential is a drag

Pfizer does have some elementary issues, nonetheless. The anticipated decline in COVID-19 product gross sales this 12 months, and a sequence of expiring patents for medication like Eliquis, Ibrance, and Xeljanz between 2025 and 2030, are anticipated to behave as a serious drag on earnings within the quick time period.

Administration has famous that Pfizer’s numerous pipeline and up to date acquisitions must offset most, if not all, of those anticipated gross sales declines by 2030. However this argument is closely contingent upon the scientific success of property in hematology and in hard-to-treat indications similar to Duchenne’s muscular dystrophy. So, as issues stand now, Pfizer might need bother assembly its long-term income forecast.

What is the verdict?

All issues thought of, Wall Road has most likely gone overboard on its bearish sentiment towards Pfizer inventory. Granted, the drugmaker is coping with some sturdy headwinds from COVID-19 gross sales declines and a bevy of upcoming patent expirations.

However Pfizer’s inner analysis and growth engine has been firing on all cylinders recently, and it has the monetary capability to easily purchase its method out of a jam if a number of key late-stage property fail to land within the clinic. In the meantime, buyers can financial institution on the inventory’s above-average dividend yield as the corporate slowly works by means of these headwinds.