It’s been 13 months since Pfizer (NYSE: PFE) announced that it is cooperating with BioNTech to develop a COVID-19 vaccine. Since then, Pfizer’s shares have risen more than 26%. It may not seem too bad when you consider that the S&P 500 index rose almost 2.5 times over the same period.
But in different ways, the future looks great for the big drugmaker than it has been for some time. Should you buy Pfizer in April?
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Phooey on Pfizer?
Let me start by trying to convince you to buy this great pharmaceutical stock. It should be reasonably well thought out that if investors did not change a COVID-19 vaccine within a record time, it would do nothing. This is exactly what Pfizer did, but with relatively few performance prices.
One of the main reasons why this is the case is that no one knows how successful Pfizer’s COVID-19 vaccine will be after 2021. It seems likely that the number of vaccinations will decrease significantly after the pandemic is over, even if boost shots are needed. Also remember that Pfizer has to split its profits on its COVID-19 vaccine with BioNTech.
Meanwhile, Pfizer’s current series has some big question marks. The drug for autoimmune diseases Xeljanx jumped into a safety study after marketing. People who used the drug had higher cardiovascular events and cancer than those who used TNF inhibitors such as Humira and Enbrel.
The company initially hoped that breast cancer remedy Ibrance would be a big winner as an early remedy. But after failing in two late-stage clinical trials last year, that’s not going to happen.
Pfizer’s prospects for pipelines are also cloudy. The US Food and Drug Administration (FDA) has pushed back its three-month review of the regulations for abrocitinib in the treatment of atopic dermatitis. And an FDA advisory committee overwhelmingly voted against recommending tanezumab for the treatment of osteoarthritis.
A better picture
Before you run away from Pfizer, you want to see the bigger (and better) picture for the business. To begin with, Pfizer no longer has older drugs like Lipitor and Lyrica that lost their exclusivity because it had its Upjohn unit cut off and merged with Mylan to form. Viatris.
With this transaction now underway, Pfizer expects to deliver a compounded annual growth rate of 6% (CAGR) over the next five years and a double-digit percentage CAGR for adjusted earnings per share. These numbers are risk-adjusted: Pfizer does not count on all of its pipeline candidates to be successful in reaching this level of growth.
More importantly, the company’s growth projections do not include any potential sales of the COVID-19 vaccine. Not one cent. Pfizer and BioNTech together should earn more than $ 20 billion together in 2021 alone.
Look for a nice portion of the income to be recurring. Frank D’Amelio, chief financial officer of Pfizer, recently confirmed that the major drugmaker completely expects annual vaccinations to be necessary. The COVID-19 vaccine has proven to be safe and extremely effective. Pfizer should henceforth be in a good competitive position with new versions of the vaccine that do not require ultra-cold storage.
Also, do not reject Pfizer’s pipeline potential. The company appears to have a good chance of winning FDA and European approvals for its new pneumococcal vaccine. Lorbrena received FDA approval in March as a first-class treatment for ALK-positive metastatic lung cancer. Pfizer’s clinical success rates are also boosting the biopharmaceutical industry, which offers many benefits for the company to get more approval from its pipeline.
Two out of three is not bad
So should you buy Pfizer in April? My answer is that it depends on your investment style.
The reality is that Pfizer is unlikely to deliver the long-term growth that aggressive investors are looking for. Even with its COVID-19 vaccine and potential pipeline winners, the company is unlikely to match strong-growing stocks.
However, we have not yet talked about Pfizer’s valuation. I think investors with value can keep Pfizer’s shares trading only 11.5 times the expected earnings.
If you are an income investor, Pfizer will surely be attractive. The company’s dividend yield currently stands at 4.2%. Of course, returns will drop slightly with Pfizer’s pre-planned dividend cut when Viatris launches its dividend program this quarter. Even after that happens, however, Pfizer will remain one of the better dividend stocks on the market.
The bottom line is that Pfizer appears to be a good choice to buy this month for bargain hunters and income seekers, but not for investors looking for aggressive growth. As the old saying goes, two out of three is not bad.
This article represents the opinion of the author, who may not be in agreement with the ‘official’ recommendation position of a Motley Fool premium advisory service. We are furry! Questioning an investment thesis – even one of our own – helps us all to think critically about investments and to make decisions that help us become smarter, happier and richer.