During the pandemic, it was one of the most well-known S&P 500 companies in the world. Famous for being the first to develop an FDA-approved Covid vaccine, Pfizer (NYSE: PFE) quickly became a household name.
Today, the pharma giant’s market-cap has collapsed over 50% from its Covid-era high of $333.8bn. Now at around $150bn, it no longer holds a place in the largest 100 companies in the world.
As the pandemic ended, the huge influx of revenue from vaccine sales tapered off. In the ensuing years, the share price fell to a 10-year low. But Pfizer is not just a vaccine company. It also develops treatments for a range of medical conditions such as cancer, sickle cell disease and arthritis.
So is the falling share price indicative of wider issues or simply an expected correction after Covid?
Business as usual
Pfizer doesn’t appear to be struggling in the face of falling revenues. In 2022, it acquired the immuno-inflammatory company Arena Pharmaceuticals and the following year, Seagen, an oncology specialist.
But vaccines remain one of its biggest focus areas. Its success during Covid means it’s in good stead to be the company of choice for vaccine development. It currently has a strong pipeline for the development of new mRNA-based flu and RSV vaccines.
Valuation
The falling price means the stock is now trading at 67% below fair value based on future cash flow estimates. Plus, earnings are forecast to grow at a rate of 15.7% a year.
That gives the stock an attractive forward price-to-earnings (P/E) ratio of 13. As such, analysts expect price growth of 25% on average in the coming 12 months.
Challenges
Like many pharmaceutical companies, Pfizer faces the imminent and terrifying patent cliff. As the expiration dates of its major drug patents draw near, it faces the risk of competition from generics and biosimilars.
Not only does it face competition from generic developers but also major pharmaceutical players like Merck, Johnson & Johnson and Novartis. It can’t rely on another pandemic to boost sales — if it hopes to remain relevant, it needs to outperform its competitors.
In the past, it suffered reputational damage from the high pricing of EpiPens and cancer drugs. With a recent uptick in debates around healthcare pricing in the US, a forced reevaluation of its pricing model could limit revenues.
My verdict
Pfizer remains a strong business that seems to be performing well and expanding effectively. The 6.5% yield makes the current low price particularly attractive. Grabbing some cheap shares now could set an investor up for lucrative returns over the coming years.
Without a doubt, there are challenges, particularly those related to the wider healthcare controversy in the US. However, the company’s worst losses appear to be over with the stock trading up during Q3 this year. If the economy enjoys a boost in 2025 under the new Trump administration, it stands to benefit.
With Christmas coming, I don’t have spare cash to put into new stocks right now. However, for investors looking to diversify into US pharmaceuticals, I think Pfizer is worth considering.
The post Down 50% with a 6.5% yield, is this massive S&P 500 stock a screaming buy? appeared first on The Motley Fool UK.
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Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
