Is Pfizer Stock Fully Valued At $28?

Pfizer (NYSE: PFE) reported its Q1 results last week, with revenues and earnings beating the street estimates. The company reported revenue of $14.9 billion and an adjusted profit of $0.82 per share, compared to the consensus estimates of $14.0 billion and $0.52, respectively. Pfizer has seen a meaningful decline in sales owing to lower demand for Covid-19 products. Despite its Q1 beat, we think PFE stock is appropriately priced at its current levels of around $28. In this note, we discuss Pfizer’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at Pfizer’s stock performance. PFE stock has seen a decline of 15% from levels of $35 in early January 2021 to around $30 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. However, the decrease in PFE stock has been far from consistent. Returns for the stock were 60% in 2021, -13% in 2022, and -44% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that PFE underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could PFE face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a recovery? From a valuation perspective, PFE stock looks like it is appropriately priced. We estimate Pfizer’s Valuation to be $29 per share, close to its current levels of $28. Our forecast is based on a 13x P/E multiple for PFE and expected earnings of $2.25 on a per-share and adjusted basis for the full year 2024.

Pfizer’s revenue of $14.9 billion in Q1 was down 19% y-o-y, primarily due to lower sales of its Covid-19 products. The sales growth was 11%, excluding the Covid-19 products. A strong uptick in Vyndaqel and Abrysvo aided the overall sales growth. Eliquis sales were up 10% and Pravnear family saw a 7% uptick in revenue. Pfizer’s adjusted net margin plunged over 670 bps to 31.4% partly due to higher R&D expenses. Lower revenues and margin contraction resulted in earnings of $0.82 on a per-share and adjusted basis, compared to $1.23 in the prior-year quarter.

Looking forward, Pfizer expects its 2024 sales to be in the range of $58.5 billion and $61.5 billion, compared to $58.5 billion in 2023. This includes a $3.1 billion contribution from Seagen. The company expects its bottom line to be in the range of $2.15 and $2.35 on an adjusted basis (versus $1.84 in 2023).

[1] Returns as of 5/6/2024
[2] Cumulative total returns since the end of 2016

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