Pfizer stock (NYSE: PFE) is trading at about $30 per share, not far from the lows seen in recent years. Could the stock rise by over 2x in value over the next few years? Does this sound a bit ridiculous? Consider this – Pfizer stock was trading at levels of $54 per share just about three years ago. Although it has been plagued by multiple issues, including falling sales with lower demand for its Covid-19 products, and an increased competition for some of its drugs, the company has several initiatives underway that could turn things around. In this analysis, we outline a possible scenario that could help drive Pfizer stock up to levels of around $60 per share. We consider three key metrics, namely revenues, net margins, and price-to-earnings multiple.
Pfizer has been a volatile stock, and the changes over the last three years have been far from consistent. Returns for PFE stock were 67% in 2021, -10% in 2022, and -41% in 2023. In contrast, the Trefis High Quality 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. But how could Pfizer possibly regain its footing and rise again? Let’s delve into the company’s revenue prospects to begin with.
Pfizer’s Revenues Are Set To Return To Growth
Pfizer’s sales have seen a v-top chart pattern lately. Pfizer’s revenues surged from $41.7 billion in 2020 to $100.3 billion in 2022, but plunged thereafter to $58.5 billion in 2023 and $55.2 billion in the last twelve months. If the company can turn the business around, driving revenues at an average annual rate in the high single-digits over the next three years, the top-line could grow to about $70 billion by 2026, or by roughly 20% between 2023 and 2026.
How can Pfizer do this?
Although Pfizer’s Covid-19 products have been losing ground due to falling demand, the company’s pipeline of new drugs looks promising. The company 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. The company is focused on cancer drugs to drive this growth. 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 68% y-o-y to $2.5 billion for the six-month period ending June 2024, while Eliquis sales were up 9% to $3.9 billion. If we exclude Covid-19 products, Pfizer sales were up 14% y-o-y in the previous quarter. Pfizer appears to have found some footing after the declining Covid-19 products sales, and it will likely return to growth starting this year.
Pfizer’s Margins Have Some Room For Expansion
Pfizer’s adjusted net margins (net income, or profits after expenses and taxes, calculated as a percent of revenues) have been on a declining trajectory – they fell from levels of over 31% in 2020 to about 18% in 2023 amid declining sales. That being said, multiple trends point to a recovery, and margins could rise to about 30% by 2026.
Why?
Firstly, 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.
How Does This Impact Pfizer’s Valuation?
Now at the current market price of close to $30 per share, Pfizer trades at about 16x trailing earnings. The number falls to 11x for 2024, considering that the company is expected to see profitability rise this year amid its cost-cutting initiatives. So what explains the difference in Pfizer’s P/E multiple using 2023 and 2024 earnings? It’s because investors are betting that things could get better for the company.
If we combine the scenario we detailed above – which estimates revenue growth of roughly 20% between 2023 and 2026 with margins growing from 18% in 2023 to about 30% in 2026, this would mean that adjusted net income could grow by roughly 2x, from about $10.5 billion in 2023 ($1.84 per share) to about $21 billion (about $3.80 per share). Good times make it easier to imagine even better times – and when that happens, investors could begin to see Pfizer in a more favorable light, re-assessing the company’s recovery path. For example, if Pfizer’s investors assign a multiple of 18x following its stronger growth trajectory, this could translate into a stock price of about $68 per share by the end of 2026, assuming earnings of $3.80 per share.
What about the time horizon for this positive-return scenario? While our example illustrates this for a 2026 timeline, in practice, it won’t make much difference whether it takes two years or four. If the turnaround takes hold, with Pfizer improving its key metrics, we could see meaningful gains in the stock. This is a storied company with a great past and valuable know-how in the pharmaceuticals market. Our analysis suggests that a win will be at hand – it just may not be quick and may require patience.
And it could be a bumpy ride for a while. There is certainly a case to be made for sizable long-term gains from Pfizer stock, but the Trefis High Quality Portfolio could be right up your alley if consistent outperformance is at the top of your list.
While Pfizer stock could turn around over the coming years, 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.
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