Pfizer (DFP 3.69%) is one of the largest healthcare companies in the world. It is known for its COVID-19 vaccine and pill, as well as a line of pharmaceuticals that help treat cancer, rare diseases, arthritis, and many other conditions and diseases.
This year, however, has been difficult for the stock, with its shares having fallen 19% since January – only slightly better than the S&P500down 20%. Could this stock be a bargain right now? Or is it better to avoid, given the uncertainty it faces around its COVID-19 products?
Revenue remains a big question mark
One of the main reasons investors have been bearish on the stock this year is concern over the company’s revenue strength in 2023 and beyond. People don’t rush to get callbacks. Data from the Centers for Disease Control and Prevention shows that only half of adults who were fully vaccinated against COVID-19 got their first booster. Demand appears to be declining, and unless there is a resurgence in COVID-19 cases, that’s a trend that’s likely to continue into 2023.
For Pfizer, a company that will generate about $54 billion in revenue from its two COVID-19 products this year (out of $102 billion in total revenue), this is troubling news as it suggests there is going to be more. have a significant drop in sales next year.
The challenge for the company is how to fill this shortfall. Pfizer has acquired companies over the past year to bolster its pipeline, but many of them are long-term stocks that won’t even come close to offsetting a drop in revenue from COVID-19.
Pfizer to increase prices of COVID-19 vaccine
In 2023, the government will no longer purchase COVID-19 vaccines as its supply is running out and a lack of funding prevents it from doing so. Instead, the commercial market will determine the demand for vaccines in the future. This gives Pfizer the ability to change the price of its injections, which it plans to do. Instead of the $30 per dose the US government currently pays, Pfizer will charge between $110 and $130.
Higher prices will help offset a drop in demand, but at the same time it could hurt its competitiveness. Rival Modern estimated a price per dose between $64 and $100. And Novavaxwhich only won emergency use authorization for its vaccine and booster this year, could also potentially drive Pfizer’s price down.
Pfizer’s substantial price increase could result in up to $3 billion in additional annual revenue for the company, according to an analyst’s estimate. But at the same time, it could destroy demand for vaccines if companies are unwilling to pay so much for it – a very realistic scenario at a time when inflation is a major concern.
As a result, there remains a great deal of uncertainty surrounding the company’s operations as we approach next year.
The stock is trading at a gigantic discount
One way investors can protect themselves from uncertainty is to pay a low multiple of a company’s earnings. This way, if there is a significant drop in sales and profits, there is less risk of a sell-off. Today, Pfizer trades at less than 9 times earnings. To put that into perspective, it’s almost a 10-year low for the stock.
Although rising interest rates and inflation are reducing the premiums investors are willing to pay for stocks in today’s market, Pfizer is still heavily discounted. By comparison, average healthcare stocks trade at an earnings multiple of 21.
Should you buy Pfizer stock today?
Pfizer’s future over the next 12 months looks uncertain, but when you’re investing over a five-year or a decade, investors are much less eager to worry about how the company will make up for the loss. revenue due to COVID-19.
That might be a challenge, but Pfizer has a pipeline that included 104 projects as of July, including 30 that were in advanced testing. Somewhere along the way, he will develop products that will most likely help generate additional revenue. And if it still can’t, it can look for other acquisitions — the company has more than $33 billion in cash and short-term investments as of July 3.
With a dividend yielding nearly 3.6% right now, Pfizer looks like a bargain. If you’re a long-term investor, short-term concerns about the company shouldn’t hurt what remains a top business in healthcare.