After surging on vaccine news, Pfizer (NYSE:PFE) stock has slid back since early December. To me, this recent pullback in Pfizer stock is a bit of surprise.
Why? Sure, economic upside from BNT162b2, which it developed with BioNTech (NASDAQ:BNTX), may moderate relative to the pharma giant’s size. For a smaller name like Moderna (NASDAQ:MRNA), the windfall from its vaccine rollout is much greater relative to its size.
Yet, while investors may be selling this vaccine play out of disappointment, for others, this may be a great “buy the dip” situation.
How so? Several reasons. First, its solid, growing dividend. Second, the stock’s reasonable valuation relative to peers. Third, the potential for its candidate pipeline outside of Covid-19 to help drive consistent earnings growth in the coming years.
Put it all together, and there’s plenty in motion to help shares head higher over the long term. Don’t expect PFE stock to turbocharge your portfolio in 2021. But, for prudent investors looking for reasonably priced, high-quality names, this may be just the ticket.
Pfizer Stock and Vaccine Profits
First things first: is Pfizer still a vaccine play? After pulling back following its post-vaccine rally, it may seem like Wall Street has digested the vaccine news. Shares soared from around $36 per share, up to $42 per share, before the stock gave up the lion’s share of its Covid-19 related gains.
It may seem like investors are no longer pricing in this catalyst. But, who’s to say it won’t help put points in the stock yet again? Especially when the company starts releasing sales results. Based on estimates from Morgan Stanley, BNT162b2 is set to generate $19 billion in 2021 sales. Not only that, it could generate another $9.3 billion in sales between 2022 and 2023.
Sure, the company will split this 50/50 with BioNTech. But, even when taking into its potential profit margin, both companies could each clear $7 billion. But is this possible one-time windfall enough to move the needle for Pfizer stock?
In theory, yes. Seven billion dollars isn’t much for a company with a $204 billion market capitalization. Yet, it could be enough to push shares up towards 2018-2019 price levels (between $40-$45 per share). But, beyond the slight boost Pfizer could receive from the vaccine, there are several non-Covid factors on the table. Altogether, there’s more than enough on the table to send shares higher in the coming years.
Solid Dividend, Reasonable Valuation Make This A Buy
Despite the recent sell-off, it seems the vaccine catalyst remains in motion. But, beyond the vaccine, there are three factors at play that make PFE stock a great buy at today’s prices. These factors could also help drive the stock to new highs not just in 2021, but in subsequent years as well.
What am I talking about? Pfizer’s dividend, its reasonable valuation, and solid long-term earnings growth potential. With its 4.2% forward yield, shares offer what’s practically high-yield in today’s low-interest rate environment. Not only that, with average dividend growth of 6.72% in the past five years and a payout ratio of 54.5%, there’s room for its payout to continue heading higher in the coming years.
Regarding valuation, you really can’t call Pfizer stock a “deep value” play. But, compared to peers, valuation looks reasonable. Its current forward non-GAAP price-to-earnings, or P/E ratio (12.8x), is on par with rival Merck’s (NYSE:MRK) forward multiple of 13.3x. And far below the forward P/Es of Johnson & Johnson (NYSE:JNJ) and Eli Lilly (NYSE:LLY), which have forward P/Es of 19.2x and 22.4x, respectively.
As this Seeking Alpha contributor recently discussed, the company’s deep pipeline of promising candidates gives investors another reason to be bullish. Simply put, there’s enough going on outside of the vaccine catalyst to help earnings continue to grow by high-single digits.
High-single digits isn’t exactly “growth” territory. But, along with the stock’s high yield, it could be enough to produce solid long-term returns.
The Bottom Line on PFE Stock
Don’t expect to get rich off of Pfizer. But while its vaccine catalyst may no longer help boost its share price, there’s plenty on the table that’s appealing for prudent investors. For those looking for income, the company’s solid yield, and strong dividend growth history, make it a worthwhile dividend play.
With stock valuations overall at or near record highs, those concerned markets are set for a big correction may want to consider more reasonably-priced opportunities like this one. With projected high-single digit earnings growth in the coming years, this slow-and-steady stock may produce solid returns for long-term investors.
In short, there’s more to like about Pfizer stock than just its vaccine catalyst. With so much on the table to move shares higher in the next 12 months, seize the opportunity and buy the recent pullback.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.