Pfizer (PFE) – Post-Covid Growth Prospects
Post-Covid Growth Prospects
Supporting Arguments
• Pipeline and portfolio advancement ensures better long-term growth prospects for Pfizer’s pharmaceutical business
• Favorable fundamental and technical analysis
Investment Thesis
Pfizer is an American multinational pharmaceutical and biotechnology corporation, specializing in the development of medicines and vaccines across a wide range of disciplines including oncology, immunology, rare diseases and other clinical areas. The Company’s stock experienced a lengthy period of falling prices after the peak earnings driven by the pandemic. In our opinion, the downturn has concluded with Pfizer now enhancing its pipeline and product lineup to secure long-term business growth.
The Company’s performance in the first half of 2024 was encouraging, as Pfizer's pipeline improvements began to translate into revenue growth within its core product portfolio. In Q2 2024, Pfizer's total revenue grew by 2.1% compared to the previous year, although the core portfolio’s growth is overshadowed by reduced earnings from COVID-19 treatments, including Paxlovid and Comirnaty. Excluding the impact of COVID products, the Company achieved a 13.4% y/y increase in revenue, with 7.5% of this growth coming from proceeds associated with Seagen, which was acquired late last year.
In our view, the updated product portfolio significantly strengthens Pfizer’s long-term revenue growth trajectory. The Company has wisely administered the funds earned during the COVID-19 pandemic, significantly revamping its product portfolio through both M&As and in-house R&D. The Q2 2024 report evoked target and recommendation revisions by analysts. We also expect Pfizer’s progress to facilitate further enhancement of investors’ perception of the Company as a growing business.
The first half of 2024 saw Pfizer achieving key milestones in the strategic directions announced at the start of the year. Key strategic priorities are establishing leadership in oncology, advancing pipeline development, and improving profitability. We believe the Company is set to emerge as the top oncology drugmaker by revenue this decade, thanks to both Seagen’s products and its own pipeline. During the Oncology Innovation Day in February 2024, Pfizer’s executives outlined their goal of introducing at least eight blockbuster cancer drugs by 2030 and expanding the proportion of biologics in their global revenue to 65%, from a previous 20% in 2023. This move is crucial as Merck (MRK), the current leader in oncology, is struggling to advance its next generation of cancer therapies. This also has the potential to support Pfizer’s valuations.
Pfizer is making strides towards improved profitability, reflecting a key strategic aim with visible results. Adjusted gross margin increased by 3 percentage points to reach 79%, thanks to a decrease in the revenue contribution from COVID products and the introduction of a cost optimization program for manufacturing, targeting $1.5 billion in cost savings by 2027 and projected to enhance gross margins. The ongoing cost reprioritization initiative aims to control the increase in operating expenses relative to revenue, potentially supporting EPS growth through 2024 and 2025.
PFE stock is trading at attractive valuations. Technical analysis implies a continued upside. PFE stock trades at P/E NTM of 10.4, which is below the Company’s pre-pandemic average of 12.5. We consider such a discount unfair, given the anticipated acceleration of Pfizer’s revenue and EPS growth over the next 2-3 years compared to the pre-covid dynamics.
The technical indicators imply the stock passed a reversal “hammer” pattern on August 16. The price rebounded from the lower limit of the new ascending channel, confirming that its position is confidently set above the 200-day moving average. In our view, the PFE price is starting a medium-term upward movement, which is evidenced by fundamental undervaluation and several technical signals: the golden cross, resistance at the lower boundary of the ascending price channel, and reversal candlestick patterns.
Based on this analysis, we assign a “Buy” rating to PFE stock with a target price of $32.90 over a two-month horizon. A stop-loss order is recommended to be set below the 200-day moving average at $26.90.
Supporting Arguments
• Pipeline and portfolio advancement ensures better long-term growth prospects for Pfizer’s pharmaceutical business
• Favorable fundamental and technical analysis
Investment Thesis
Pfizer is an American multinational pharmaceutical and biotechnology corporation, specializing in the development of medicines and vaccines across a wide range of disciplines including oncology, immunology, rare diseases and other clinical areas. The Company’s stock experienced a lengthy period of falling prices after the peak earnings driven by the pandemic. In our opinion, the downturn has concluded with Pfizer now enhancing its pipeline and product lineup to secure long-term business growth.
The Company’s performance in the first half of 2024 was encouraging, as Pfizer's pipeline improvements began to translate into revenue growth within its core product portfolio. In Q2 2024, Pfizer's total revenue grew by 2.1% compared to the previous year, although the core portfolio’s growth is overshadowed by reduced earnings from COVID-19 treatments, including Paxlovid and Comirnaty. Excluding the impact of COVID products, the Company achieved a 13.4% y/y increase in revenue, with 7.5% of this growth coming from proceeds associated with Seagen, which was acquired late last year.
In our view, the updated product portfolio significantly strengthens Pfizer’s long-term revenue growth trajectory. The Company has wisely administered the funds earned during the COVID-19 pandemic, significantly revamping its product portfolio through both M&As and in-house R&D. The Q2 2024 report evoked target and recommendation revisions by analysts. We also expect Pfizer’s progress to facilitate further enhancement of investors’ perception of the Company as a growing business.
The first half of 2024 saw Pfizer achieving key milestones in the strategic directions announced at the start of the year. Key strategic priorities are establishing leadership in oncology, advancing pipeline development, and improving profitability. We believe the Company is set to emerge as the top oncology drugmaker by revenue this decade, thanks to both Seagen’s products and its own pipeline. During the Oncology Innovation Day in February 2024, Pfizer’s executives outlined their goal of introducing at least eight blockbuster cancer drugs by 2030 and expanding the proportion of biologics in their global revenue to 65%, from a previous 20% in 2023. This move is crucial as Merck (MRK), the current leader in oncology, is struggling to advance its next generation of cancer therapies. This also has the potential to support Pfizer’s valuations.
Pfizer is making strides towards improved profitability, reflecting a key strategic aim with visible results. Adjusted gross margin increased by 3 percentage points to reach 79%, thanks to a decrease in the revenue contribution from COVID products and the introduction of a cost optimization program for manufacturing, targeting $1.5 billion in cost savings by 2027 and projected to enhance gross margins. The ongoing cost reprioritization initiative aims to control the increase in operating expenses relative to revenue, potentially supporting EPS growth through 2024 and 2025.
PFE stock is trading at attractive valuations. Technical analysis implies a continued upside. PFE stock trades at P/E NTM of 10.4, which is below the Company’s pre-pandemic average of 12.5. We consider such a discount unfair, given the anticipated acceleration of Pfizer’s revenue and EPS growth over the next 2-3 years compared to the pre-covid dynamics.
The technical indicators imply the stock passed a reversal “hammer” pattern on August 16. The price rebounded from the lower limit of the new ascending channel, confirming that its position is confidently set above the 200-day moving average. In our view, the PFE price is starting a medium-term upward movement, which is evidenced by fundamental undervaluation and several technical signals: the golden cross, resistance at the lower boundary of the ascending price channel, and reversal candlestick patterns.
Based on this analysis, we assign a “Buy” rating to PFE stock with a target price of $32.90 over a two-month horizon. A stop-loss order is recommended to be set below the 200-day moving average at $26.90.
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