What’s Behind The 50% Fall In Pfizer Stock?

Pfizer stock (NYSE: PFE) is down 7% in a month, amid rising concerns over the future of vaccines under Robert F. Kennedy Jr. in the new government, given the perception of him being a prominent anti-vaccine activist. Pfizer has had its own issues with falling Covid-19 vaccine sales weighing on its stock performance over the recent years. It has seen a 50% drop from levels of $52 seen in early 2022 to $26 now, compared to a 4% rise for the broader S&P 500 Healthcare index. The decline in Pfizer stock can be attributed to:

1. a 37% fall in the company’s adjusted earnings from $4.06 in 2021 to $2.58 now; and,
2. a 21% decline in the company’s trailing P/E ratio from 13x to 10x over this period.

Let’s dive deeper into these factors.

What’s Behind The Fall In Pfizer’s Earnings? 

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. Even though Pfizer’s last twelve-month sales were $59.4 billion, it’s still a long way from $100 billion.

Pfizer has been looking to address the falling sales, eyeing both organic and inorganic growth. The company’s pipeline of new drugs looks promising. Pfizer expects to have eight blockbuster drugs by 2030, thanks to Pfizer’s acquisition of Seagen for $43 billion in December last year that will help achieve this target. Some of the potential blockbuster drugs include Atirmociclib, Vepdegestrant, Mevrometostat, and Disitamab Vedotin.

Pfizer is seeing a strong uptick in Vyndaqel and Abrysvo and a continued growth in Eliquis has aided the overall sales growth lately. Vyndaqel sales were up 66% y-o-y to $3.9 billion for the nine-month period ending Sep 2024, while Eliquis sales were up 8% to $5.5 billion.

Looking at Pfizer’s profitability, its adjusted net margin rose from 28.5% in 2021 to 37.6% in 2022 before declining to 18.0% in 2023. It has recovered to 24.8% in the last twelve months. Falling sales clubbed with lower margin has weighed on Pfizer’s bottom line over the recent years.

However, Pfizer has been looking to cut costs considerably. It is targeting $4 billion in savings by the end of this year. This plan includes massive layoffs and cutting down on its research and development spending. Separately, the company intends to shift to biologics drugs for higher reliance on revenues. Biologics are more expensive and could drive up Pfizer’s pricing and margins.

What’s Behind Falling Valuation Multiple?

Investors have punished PFE stock lately, amid declining revenue and margins. But there’s more to the  falling valuation. An activist investor – Starboard – built a $1 billion position in PFE stock a few months back, and it has stated that Pfizer has overspent on its recent acquisitions. Furthermore, Pfizer has withdrawn the sickle cell disease candidate it acquired in a $5.4 billion deal with Global Blood Therapeutics, raising concerns over management’s decisions on R&D spending.

On the positive side, a plug on falling sales this year and an improvement in profitability are some of the factors that bode well for Pfizer. Pfizer is also working on a once-a-day version of its weight-loss pill – danuglipron – and scrapped a twice-daily version of the drug late last year, amid high rate of side effects.

Does PFE Stock Have Any Room For Growth?

We think PFE stock is undervalued now. The decrease in PFE stock over the last few years has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for PFE stock were 67% in 2021, -10% in 2022, and -41% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it 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 and Trump appointing RFK Jr. to head the HHS department, 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? We estimate Pfizer’s Valuation to be $36 per share, more than 35% above its current price of around $26. Our forecast is based on a 11x P/E multiple for PFE and expected earnings of $3.15 on a per-share and adjusted basis for the full year 2025. The 11x figure is lower than the stock’s average forward P/E ratio of over 14x over the last five years. A lower valuation multiple seems reasonable given the decline in sales and uncertainty about future revenue drivers.

That said, at current levels of $26, PFE stock is trading at just 8x forward earnings, which seems very low. We think the potential headwinds for Pfizer are well priced in, and investors will likely be better off picking PFE stock in the current fall for robust long-term gains.

While PFE stock looks undervalued, 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 12/3/2024
[2] Cumulative total returns since the end of 2016

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