Pfizer Inc. (PFE) stock has been in a downtrend for four months, culminating in a new 52-week low last month, and it’s not clear if the Pfizer stock price has bottomed out yet.
And that’s just the latest reason to be pessimistic about Pfizer stock these days. Although it has some promising drugs in its pipeline, that’s being more than offset by declining sales of blockbusters like Lipitor.
Pfizer is also getting hurt by the strong dollar, which raises prices for customers overseas.
Put it all together, and revenue growth is tough to come by. It’s just tough to make a strong bull case on this name.
Analysts, on average, expect Pfizer’s sales to grow just 4.6% this year, according to a survey by Thomson Reuters. Bottom-line gains are similarly uninspiring. Wall Street expects earnings per share to rise only 3.6% this year.
True, this slow-growth stock offers a generous dividend with a yield of 4.04%. The price-to-earnings multiple also shores up the case for Pfizer stock as a value pick.
At the current Pfizer stock price, shares trade at a 28% discount to the broader market even though they have similar growth prospects. And, needless to say, the PFE dividend is far superior to the S&P 500’s yield of 2.27%.
It also trades at a discount to its own five-year average.
Pfizer Stock: Short-Term Laggard, Long-Term Winner
As much as the Pfizer stock valuation looks reasonably attractive, it’s tough to like it in the short run. After all, growth is expected to be sluggish this year despite the acquisition of Hospira.
Furthermore, the transformative acquisition of Allergan plc (AGN) faces political risk if lawmakers balk at PFE relocating its headquarters to Ireland.
The sum total of these troubles is a Pfizer stock price that has been desultory. Shares are off about 8% year-to-date. That lags a down market by about 6 percentage points.
And yet, counterintuitively, none of this makes Pfizer stock a sell. It’s simply too big and diversified not to benefit from powerful demographic trends. After all, even the youngest baby boomers are turning 52 this year. The oldest boomers turn 70. Demand for drugs is only going up.
In another point for bulls, recent acquisitions will be increasingly accretive to EPS as PFE cuts away overlapping costs. But the demographic factor alone should help PFE generate total returns that outpace the S&P 500 over the longer term.
It’s easy to get down on PFE today, but tough times shall pass. Solid defensive characteristics, a healthy dividend and favorable demographics make Pfizer stock look like a safe and solid equity income pick in the healthcare sector.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
