Pfizer (NYSE:PFE) and its German biotech partner BioNTech (NASDAQ:BNTX) will likely have first-mover advantage in the novel coronavirus vaccine race in the U.S. This will affect PFE stock, once its vaccine results are in.
The reason for this is that the two companies are expecting to be the first to produce large-scale results from their Phase 2/3 clinical trials in October, according to Barron’s. Depending on how effective their vaccine is, the U.S. Food and Drug Administration may even grant it emergency-use authorization (EUA).
The advantage of their trial is that it is large, involving over 30,000 participants. The FDA wants to see at least 50% efficacy in trials before granting any Covid-19 authorization.
Why Pfizer’s Vaccine Looks Like a Winner
If the vaccine from Pfizer and BioNTech comes in higher than that, along with its huge sample size, the FDA and President Donald Trump are likely to move quickly with the EUA. That will be a huge boon to both PFE stock and BioNTech.
There is reason to be optimistic. In early July, the companies said that in a smaller study, all 24 patients taking their messenger RNA vaccine produced antibodies.
They took lower doses of the vaccine and developed antibodies after 28 days — at levels about two times higher than in normal, recovering Covid-19 patients.
However, one huge problem has emerged. BioNTech and Pfizer’s candidates, BN1162b2 and BNT162b2, needs to be stored at negative 94 degrees Fahrenheit. In other words, normal medical offices or pharmacies cannot store these vaccines.
The same is true for Moderna (NASDAQ:MRNA) and its RNA vaccine, although it can be stored at a slightly warmer — but still negative — temperature. Other vaccine makers do not have this requirement.
Pfizer Is Cheap Given Its Potential Upside
Pfizer is very cheap, much cheaper than most of the other vaccine stocks. For example, right now, PFE stock trades for just 13 times expected EPS of $2.86 for 2020. It is also only 11.6 times estimated earnings for 2021 of $3.22.
Moreover, its dividend yield is extremely attractive at 4%. In fact, if we take a look at its historical dividend yield of 3.78%, the stock has more room to run, just to get to its average dividend yield.
For example, if you take its annual $1.52 dividend and divide it by 3.78%, the target price is $40.21. That represents a potential gain for PFE stock of 8.1%.
In addition, PFE stock has fallen 5% so far this year. Over the past 12 months, it is up just 4.6%.
By contrast, BNTX stock has jumped 83% this year and skyrocketed over 340% since going public in October 2019. The same with Moderna. Its stock is up 230% this year and over 311% in the past 12 months.
Of course, Pfizer is a much larger company. It made $58.1 billion in revenue and $16.3 billion in net income in 2019. Its market capitalization is almost $210 billion.
In other words, the Covid-19 vaccine is not going to make or break PFE stock, like it might for BioNTech or Moderna.
By contrast, BioNTech had revenue of $141 million, losses of $258 million and a market cap of $14.8 billion. If it makes $500 million or $1 billion in revenue from a vaccine, that will be a big thing. In fact, the stock probably already has priced in such a victory.
What Should You Do With PFE Stock?
Morningstar says that in the past five years, PFE stock has had an average price-earnings ratio of 20.4 times. This is much higher than its present 13 times multiple (2020) and 11.6 times (2021).
Therefore, if we assume that Pfizer and its partner BioNTech are successful with their Covid-19 vaccine, PFE stock could move up to its average P/E. Even without increasing earnings estimates for 2021, that makes PFE worth $65.69 ($3.22 EPS multiplied by 20.4 times). That represents a gain of 77%.
So, now we have a second valuation point. The dividend yield valuation has a 8.1% potential gain. The historical P/E ratio method leads to a 77% gain. A third valuation point is an average of its peers. My estimate is that the its peers have an average P/E of 15.2 times, which leads to a potential price gain of 31.7%.
The average of all three of these methods leads us to a price target of $51.58. This represents an expected return of 38.7%. If you add in the 4% dividend yield, the total expected return is 42.7%.
That is a pretty good ROI for most investors. Here is the bottom line. PFE stock has a forward P/E below 12 times, a 4% dividend yield and a conservative upside estimate of 38.7%. Good value.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.