The pharmaceutical sector witnesses inelastic demand for its products owing to the rise of chronic diseases and an aging population. Given the solid prospects of the pharmaceutical industry, it could be wise to buy the fundamentally strong pharmaceutical giant Pfizer Inc. (PFE).  

During the first quarter, PFE surpassed the EPS and revenue estimates. Its EPS came 24.7% above the analyst estimate, while its revenue beat the consensus estimate by 10.9%.

On March 13, PFE announced that it was acquiring Seagen Inc. (SGEN) for a total enterprise value of $43 billion. The acquisition should bolster PFE’s position as a leading oncology player as SGEN’s medicines, late-stage development programs, and expertise in Antibody-Drug Conjugates (ADCs) complement PFE’s oncology portfolio. This acquisition is the largest in the biopharma space since June 2019.

According to PFE’s estimates, Seagen’s four commercial products, Adcetris, Padcev, Tukysa, and Tivdak, will bring in $8 billion annually by 2030. CEO Albert Bourla believes combining the two companies will lead to more oncology breakthroughs and accelerate their progress in the market. The merger is also expected to boost marketing capabilities.

PFE’s Chairman and Chief Executive Officer, Dr. Albert Bourla, stated that the company had made excellent progress toward its goal of executing and planning an unprecedented number of new products and indication launches later this year.

He stated, “We believe the strength of our in-line products and expected near-term launches and revenue contribution from business development activities, including the proposed acquisition of Seagen, will position Pfizer to deliver robust operational growth through 2025 and beyond.”

PFE reaffirmed its full-year 2023 financial guidance, with its revenue expected to come between $67 billion and $71 billion, while its adjusted EPS is expected to come between $3.25 and $3.45.

PFE’s stock has declined 3.6% over the past month and 20.8% over the past nine months to close its last trading session at $38.28.

Here’s what that could influence PFE’s performance in the upcoming months:

High Profitability

In terms of the trailing-12-month gross profit margin, PFE’s 68.81% is 23.2% higher than the 55.84% industry average. Its 43.59% trailing-12-month EBITDA margin is significantly higher than the 1.92% industry average. Likewise, its 0.49x trailing-12-month asset turnover ratio is 38.5% higher than the industry average of 0.35x.

Discounted Valuation

In terms of forward non-GAAP P/E, PFE’s 11.56x is 40.7% lower than the 19.50x industry average. Its 11.15x forward EV/EBIT is 33.5% lower than the 16.75x industry average. Likewise, its 3.21x forward Price/Sales is 26.1% lower than the 4.35x industry average.

Mixed Analyst Estimates

Analysts expect PFE’s EPS and revenue for the fiscal year 2023 to decline 49.1% and 32.1% year-over-year to $3.35 and $68.10 billion, respectively.

However, PFE’s consensus EPS estimate of $3.52 for the fiscal year 2024 represents a 5.1% improvement year-over-year. The consensus revenue estimate of $68.86 billion for the same year indicates a 1.1% increase from the prior year.

Solid Historical Growth

PFE’s EBIT grew at a CAGR of 70.4% over the past three years. Its revenue grew at a CAGR of 34.6% over the past three years. In addition, its net income grew at a CAGR of 22.7% in the same time frame.

POWR Ratings Show Promise

It’s no surprise that PFE has an overall B rating, equating to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PFE has an A grade for Value, consistent with its discounted valuation. It has a B for Quality, in sync with its high profitability.

Within the Medical - Pharmaceuticals industry, PFE is ranked #33 out of 166 stocks. Click here to access PFE’s Growth, Momentum, Stability, and Sentiment ratings. 

Bottom Line  

Despite a slowdown after a record-breaking 2022 fuelled by the sale of its COVID-19 products, PFE expects operational revenue growth of between 7% and 9% in 2023, after excluding the sales from COVID-19 products.

The recent acquisition of oncology major SGEN and the approval of drugs like Zavzpret, Cibinqo for adolescents, and Prevnar 20 in pediatric patients are expected to drive its growth in the long term. Moreover, the company has several drugs in the pipeline waiting for approval.

Given its high profitability, solid historical growth, and discounted valuation, it could be wise to buy the stock now.

How Does Pfizer Inc. (PFE) Stack Up Against Its Peers?

While PFE has an overall POWR Ratings grade of B, equating to a Buy rating, investors could check out these other stocks within the Medical - Pharmaceuticals industry with an A (Strong Buy) or B (Buy) rating: Novartis AG (NVS), Novo Nordisk A/S (NVO), and Ironwood Pharmaceuticals, Inc. (IRWD).

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PFE shares were trading at $39.79 per share on Tuesday afternoon, up $1.04 (+2.68%). Year-to-date, PFE has declined -20.78%, versus a 9.10% rise in the benchmark S&P 500 index during the same period.

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.

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