Will Pfizer Stock Rebound To Its 2021 Highs Of $60?

Pfizer stock (NYSE: PFE) currently trades at $28 per share, 55% below its peak level of $61 seen in December 2021. In contrast, Merck stock (NYSE:MRK) is up 36% over this period. PFE stock was trading at $52 in early June 2022, just before the Fed started increasing rates, and is now 47% below that level, compared to 43% gains for the S&P 500 during this period. This underperformance of Pfizer stock can be attributed to declining revenues after the surge in Covid-19 vaccine demand during the pandemic. Returning to the pre-inflation shock level of over $60 means that PFE stock will have to gain more than 120% from here, and we don’t think this will materialize anytime soon. Our detailed analysis of Pfizer’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

Note that 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 only 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 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, we think there is very little room for growth. We estimate Pfizer’s valuation to be around $29 per share, close to its current market price 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. The 13x P/E multiple is slightly lower than the 15x average over the last five years, considering the significant decline in revenue post-pandemic.

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates cross 4% and increase rapidly.
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
• Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024 and 2025.

In contrast, here’s how PFE stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Pfizer and S&P 500 Performance During 2007-08 Crisis

PFE stock declined from nearly $25 in September 2007 (pre-crisis peak) to $12 in March 2009 (as the markets bottomed out), implying it lost 50% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $18 in early 2010, rising about 48% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Pfizer Fundamentals Over Recent Years

Pfizer’s revenue rose from $41.7 billion in 2020 to 100.3 billion in 2022, as the Covid-19 outbreak resulted in widespread demand for its vaccine and antiviral treatment. But this trend reversed, with Pfizer’s 2023 sales falling 42% y-o-y to $58.5 billion. The sales continue to decline and stood at $54.9 billion for the last twelve months. Its earnings stood at $0.37 on a per share and reported basis in 2023, compared to the $1.71 figure in 2020. On an adjusted basis, earnings per share fell from $2.26 to $1.84 over this period.

Does Pfizer Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Pfizer’s total debt increased from $38 billion in 2020 to $71 billion in 2023, while its cash increased from around $12.2 billion to $12.7 billion over the same period. The rise in debt can be attributed to its Seagen acquisition. The company also garnered $9 billion in cash flows from operations in 2023. Pfizer has a sufficient cash cushion to meet its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe Pfizer stock has the potential for some gains once fears of a potential recession are allayed. 2023 was a slump year for Pfizer, and it will likely see stable growth from 2024 onward. The company 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. Although the company has a robust pipeline, its experimental treatment for Duchenne muscular dystrophy (DMD) recently failed in a late-stage trial. ^[1] Overall, we think Pfizer stock has limited upside with its sales expected to rise at a low single-digit average rate over the next three years. Also, its high debt levels (with 45% debt as a percentage of equity) remain a concern.

While PFE stock looks like it is fully valued, it is helpful to see how Pfizer’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 6/14/2024
[2] Cumulative total returns since the end of 2016

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1. Pfizer’s Duchenne gene therapy fails in late-stage study, Reuters, June 13, 2024 [↩]