Should You Buy Pfizer Shares After a Cheerful Second Quarter?

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Pfizer stock (NYSE: PFE) reported its Q2 results last week, with earnings and earnings well above ours and street estimates. However, PFE shares are down about 5% in a week as the company failed to raise its full-year outlook, and there are mounting concerns about the growth of the company’s non-Covid-19 products. After the recent decline, we believe that PFE stock has some room for growth and may see higher levels as discussed below.

Pfizer’s Revenue of $27.7 billion in the second quarter, up 47% yoy, and earnings per share of $2.04 reflected significant growth of 92%. This matches our estimates of $26.5 billion and $1.92, respectively. Revenue growth was led by higher sales of the Covid-19 vaccine and antiviral pills, which were well above analyst estimates.

Despite the positive results, the company kept its full-year 2022 revenue forecast unchanged at between $98 and $100 billion, partly as a result of the strengthening dollar. It raised the bottom of its earnings forecast by $0.05 to now be between $6.30 and $6.45 per share and adjusted.

In addition, the company’s non-Covid products, including Ibrance and Xeljanz, grew more slowly than expected, leading investors to worry about the company’s long-term growth as sales of Covid-related products are expected to decline in the coming years.

However, we think that Pfizer’s
PFE
Second quarter results were great and didn’t justify a decline after the earnings announcement. Some of the company’s non-Covid products, such as Eliquis (alliance revenue) and Prevnar, are seeing an uptick in demand. Eliquis’ sales grew 23%, while Prevnar’s sales grew 18% in the second quarter. Our Pfizer revenue dashboard provides details of the business segments.

Pfizer looks to inorganic growth to expand its pipeline. Earlier this year, Pfizer acquired Arena Pharmaceuticals
ARNA
for $6.7 billion. Arena has a robust drug pipeline focused on immunologic drugs. One of its late-stage candidates — Etrasimod — is being used to treat ulcerative colitis, Crohn’s disease, and eosinophilic esophagitis, with potential peak sales estimated at $2.5 billion.

Pfizer also announced its plans to acquire Biohaven Pharmaceutical, a company specializing in migraine treatments, in a deal valued at approximately $11.6 billion. The maximum sales potential of Biohaven’s portfolio is estimated at $6 billion. These deals bode well for Pfizer in the long run, as the contribution of the Covid-19 vaccine and antiviral pills will decline in the coming years.

Given the recently announced results and outlook, we have updated our model and lowered our estimates. We expect full year 2022 revenue to be $101 billion, within the range provided by the company, but earnings will be $6.56, slightly higher than estimates.

While we have lowered our full year revenue and profit estimates, we maintain Pfizer’s Rating at $60 a share, up 22% from the current market price near $50, implying that investors may be better off using the recent dip to enter PFE stocks for long-term gains.

Our valuation is based on a future P/E ratio of approximately 9x based on our full year 2022 earnings forecast of $6.56 per share. At current levels, PFE stock is trading at less than 8x its future earnings , compared to the last three-year average of 10x
ZRX
, implying more room for growth. We assigned Pfizer a lower earnings multiple (compared to levels we’ve seen in recent years) because of an expected decline in revenue in the coming years as demand for Covid-19 products declines.

While PFE stocks have more room for growth, it’s helpful to see how Peers from Pfizer rate on metrics that matter. Other valuable comparisons for companies in different sectors can be found at Pear Comparisons.

In addition, the Covid-19 crisis has led to many price discontinuities that can provide attractive trading opportunities. For example, you will be amazed at how counterintuitive stock valuation is IDEXX Labs vs. Entegris

ENTG
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With inflation rising and the Fed raising interest rates, the PFE is down 16% this year. Can it go down even more? See how low Pfizer stocks can go by comparing the decline in past market crashes. Here’s a performance breakdown of all stocks in past market crashes.

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