Pfizer Inc. (NYSE:PFE) looks like an ideal investment for value investors in PFE stock. Its share trade at a 13x forward P/E and the company pays out a dividend yielding over 3.75 percent. After returning a decent 11 percent return in 2017, chances are good that the company will reward its investors again in the coming year.
On Dec. 18, Pfizer declared a $0.34 per share dividend, raising its distribution by 6.3 percent over its previously paid dividend. The positive shareholder return policy did not end there. The board authorized a $10 billion PFE stock share buyback program, which adds to the $6.4 billion buybacks.
The company is clearly signaling that it thinks its share is undervalued and that it should expect business growing, if at least not flat, in the quarters ahead. Still, the company may have raised its share buyback to mop up the share dilution left after years of paying for mega-mergers by issuing stock.
PFE Stock Has Deep Value in the Pharmaceutical Sector
The government’s scrutiny over the high drug pricing put a dent in valuations throughout 2017. Since settling over the pricing scandal for its Epipen, shares of Mylan NV (NASDAQ:MYL) are closer to its 52-week high again.
In the generic drug segment, Teva Pharmaceutical Industries Ltd (NYSE:TEVA) lost half its value this year but markets warmed up to the stock after the company announced an aggressive cost-cutting program. This includes cutting 14,000 jobs.
Even the beaten-down stock of Valeant Pharmaceuticals International Inc (NYSE:VRX) is recovering. The company raised the size of its debt offering, to $1.5 billion and up from $1 billion, and completed the sale of Sprout Pharmaceuticals on Dec. 20.
To ride the bounce back in the pharmaceuticals, don’t feel surprised if Pfizer shops for companies that have a strong portfolio of drugs under development.
Strong Q3 Results
Pfizer reported strong third-quarter results, thanks to prescriptions for its Xeljanz getting to all-time highs. In October, weekly prescriptions for the drug treating rheumatoid arthritis topped 10 percent. Expect momentum for this drug continuing throughout the current quarter.
In 2018, investors may expect growth for many of Pfizer’s key products. Overall, revenues topped $13.2 billion while operational growth topped $178 million from last year.
Pfizer thinks Eucrisa will generate over $2 billion in sales for the company. In Q3, patients using the drug doubled to 83,000 from the previous quarter. Patients had access to the drug through primary care facilities, pediatric, and dermatological units.
Over 60 percent of the patients taking the drug are repeat prescribers. Awareness for the drug improved after Pfizer launched a DTC (direct to consumer) campaign. Still, management probably thinks that the initial Eucrisa sales are not at a selling volume that is high enough.
Demand for Xeljanz is another positive catalyst, not only for the prescription sales growth as previously mentioned. The company filed two regulatory submissions.
For psoriatic arthritis, the FDA advisory committee indicated a positive vote for Xeljanz in the August meeting and the FDA approved the drug on Dec. 15. The FDA is also reviewing the drug for treating ulcerative colitis. The PDUFA is set for March 2018.
PFE Stock Valuation
From the 21 target prices set by analysts on Wall Street, the average target price is around $39. Users in the finbox.io community are setting a more conservative outlook. The average price target is $36, from the 12 models estimating Pfizer’s fair value. That implies no upside from PFE stock for investors.
Pfizer may not offer investors a big gain in the near-term but the company has plenty of drugs in the pipeline. The company announced the launch of phase 3 for the JAK1 inhibitor related to the treatment of atopic dermatitis on Dec. 14. The FDA approved the company’s Xeljanz drug on Dec. 15.
As the company wins more approvals, new revenue streams will emerge. Investors who are patient with PFE stock will reap the rewards over the longer term.
Disclosure: Author does not own any shares in the companies mentioned.