Shares of Pfizer (NYSE: PFE) recently marched higher in response to a dividend payout raise and a forward-looking presentation. Management confirmed the annual revenue and earnings outlook it provided in October and issued guidance for the year ahead.
In response to Pfizer's latest guidance update, BMO Capital analyst Evan Seigerman reiterated an outperform rating and a $36 per-share price target. If Pfizer stock reaches Seigerman's target, investors who buy at recent prices could see their principal investments gain about 37% in the year ahead.
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If you're an individual investor, it's important to remember investment-bank analysts have nothing to lose by issuing a bad call -- except their reputations. Below, I'll weigh some of the reasons Pfizer is under pressure against reasons to buy the pharmaceutical giant to see if it's a smart stock to buy now.
Why Pfizer's been beaten down
Pfizer stock has been beaten down by about 57% from the peak it set back in 2021. It's been under pressure because sales of its COVID-19 vaccine Comirnaty and antiviral treatment Paxlovid have been hard to predict.
Combined sales of the company's COVID-19 products are expected to reach $10.5 billion this year. That's a long way down from the $56.7 billion in sales these two products produced in 2022.
In 2022, Pfizer made a $5.4 billion investment in Global Blood Therapeutics and its sickle cell disease therapy Oxbryta. This September, a safety scare caused the company to pull Oxbryta from the market.
Eliquis is a next-generation blood thinner that Pfizer markets in partnership with Bristol-Myers Squibb. With sales that reached $5.5 billion in the first nine months of 2024, it's Pfizer's largest revenue stream. Unfortunately, the main patent protecting its market exclusivity in the U.S. expires in 2026.
Reasons to buy Pfizer now
Pfizer's stock price is down, but the company hasn't stopped raising its dividend payout. Recently, it raised its quarterly payout for the 16th consecutive year. At its beaten-down price, the steadily rising dividend offers a 6.5% yield.
The loss of Oxbryta will sting but isn't going to stop Pfizer from raising its dividend payout. In 2025, management expects adjusted earnings to reach a range between $2.80 per share and $3.00 per share. That's more than it needs to meet a dividend obligation currently set at just $1.72 annually.
The main patent protecting Eliquis' exclusivity will expire in 2026, but a formulation patent is expected to prevent generic drug manufacturers from launching a competitor until April of 2028 at the earliest. In the meantime, new blockbuster drugs will likely generate enough sales to offset the impending loss and allow for many more annual dividend raises.
In 2023, the U.S. Food and Drug Administration (FDA) approved nine new drugs from Pfizer. They can't all be zingers, but new revenue sources are already helping management predict steady earnings growth in 2025 and beyond. At the midpoint of management's earnings estimates, total revenue is expected to climb by 5% in 2025.
One of Pfizer's recently acquired revenue sources, Padcev, earned approval to treat newly diagnosed bladder cancer patients in 2023. It's already becoming standard care for this patient population, which raised sales 138% year over year to $1.1 billion during the first nine months of 2024.
In addition to a heap of new products like Padcev pushing up revenue, Pfizer is shrinking the size of its operation. In 2024, the company reduced annual operating expenses by $4 billion and expects to trim another $500 million next year.
Time to buy?
Lowered expenses combined with rising sales give new investors a great chance to beat the market over the long run. With this in mind, you might expect Pfizer's stock to trade at a high valuation -- but this isn't the case.
At recent prices, you can scoop up Pfizer shares for just 9.1 times the midpoint of management's adjusted earnings estimate for 2025. Upcoming patent expirations will sting but probably aren't going to stop total sales, earnings, and dividend payments from growing in the decade ahead. Adding some shares to a diversified portfolio to hold over the long run looks like a smart move for most investors.
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb and Pfizer. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
