Pfizer stock (NYSE: PFE) currently trades at $29 per share, 45% below its peak level of $54 seen in December 2021. In contrast, Merck stock is up 54% over this period. PFE stock was trading at $47 in early June 2022, just before the Fed started increasing rates, and is still 40% below that level, compared to 50% 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 and the company’s overestimation of Covid-19 products demand in the long run.
However, the stock has been in focus lately. Firstly, an activist investor – Starboard Value – has built a $1 billion stake in Pfizer. [1] Starboard Value will likely be asking the company to make strategic changes and turnaround its performance. Secondly, a UK court recently upheld a bid by Pfizer to invalidate two of GSK’s patents related to a respiratory syncytial virus vaccine. Both of these developments are positive for the stock.
But, looking at a slightly longer term, the performance of PFE stock with respect to the index has been quite volatile in recent years. 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.
Given the current uncertain macroeconomic environment around rate cuts and multiple wars, 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 strong jump? Returning to the pre-inflation shock level of $54 means that PFE stock will have to gain more than 85% from here, and we don’t think this will materialize anytime soon. Still, from a valuation perspective, we think there is some room for growth. We estimate Pfizer’s valuation to be around $34 per share, reflecting a 15% upside from its current levels. Our forecast is based on a 13x P/E multiple for PFE and expected earnings of $2.62 on a per-share and adjusted basis for the full year 2024. Although the 13x figure is lower than the stock’s average P/E ratio of 15x over the last five years, a slight decline in valuation multiple seems justified given the sharp decline in revenues lately.
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.
2022 Inflation Shock
Timeline of Inflation Shock So Far:
- 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.
- August 2023 – August 2024: Fed has kept interest rates unchanged to quell fears of a recession and keep inflation in check
- September 2023: Fed cut rates by 50 bps and pointed to more rate cuts going forward
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 $12 in September 2007 (pre-crisis peak) to $7 in March 2009 (as the markets bottomed out), implying it lost 45% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $10 in early 2010, rising about 52% 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 $55.2 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.
Pfizer has been eyeing options to bridge the gap from lower sales of its Covid-19 products. Its acquisition of Seagen was a step in that direction, but too little to combat the falling sales. The company has also seen a strong uptick in Vyndaqel and Abrysvo and a continued growth in Eliquis has aided the overall sales growth lately. In fact, we think that Q2 was the turning point for Pfizer, and it will likely see an improvement in sales and profits from hereon.
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 now, 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 $8 billion in cash flows from operations in the last twelve months. 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. After seeing a significant fall in sales in 2023, we think Pfizer is poised to delivery low to mid-single-digits average annual growth in the coming years. The company’s high debt level remains a key headwind in realizing these gains.
While PFE stock looks like it has some room for growth, 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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