Along with BioNTech (NASDAQ:BNTX), Pfizer (NYSE:PFE) developed the first vaccine that was proven to curtail the novel coronavirus. Nonetheless, for the past year, Pfizer stock has essentially been flat.
Yet this kind of underperformance is nothing new for Pfizer. If you bought the company’s shares five years ago, your return would be a mere 30%. To put that into perspective, the SPDR S&P Health Care Services ETF (NYSEARCA:XHS) doubled from $52 to $104 during the same period.
So why has Pfizer stock underperformed to such a great extent? Like other large pharma companies, its drug-development efforts have been faced with some tough challenges. And its patents on a number of major drugs have expired.
But despite all this, I still think much of the company’s negative catalysts are already reflected by Pfizer stock. And it does look like the company’s growth will rebound. Let’s see why I believe that.
Pfizer’s Covid-19 Vaccine
When Pfizer started developing its Covid-19 vaccine, most pundits though that it would take the drug maker several years to create an effective shot. But the company’s CEO, Albert Bourla, thought that timeline was way too pessimistic.
Boldly, he made the vaccine Pfizer’s highest priority. Of course, the company was smart to partner with BioNTech and focus on messenger RNA or mRNA. At the time, this technology had never been approved, but it held huge potential because it enabled proteins to be essentially programmed.
Bourla made other good strategic moves as well. He did not take funds from Washington because he wanted Pfizer to have control over the process of making the vaccine. The company aggressively built production infrastructure for the vaccine while it was under development. And in order to expedite federal approval of the shot, the CEO provided daily updates to the FDA.
No doubt, Bourla demonstrated incredible leadership and his actions paid off for Pfizer in a big way. But it’s difficult to estimate the revenue potential of the vaccine. According to a Morgan Stanley analyst, however, Pfizer could take in $19 billion from the vaccine this year. And the company is likely to continue generating revenue from the shot in coming years, as it may only be effective for a year or two.
But the vaccine will have other advantages for the company. The mRNA technology it obtained as a result of developing the shot might be effective for other areas, including cancer. Moreover, Pfizer will use the lessons it learned from quickly developing the shot to speed up the development of its other drugs.
Pfizer’s Pipeline and Strategic Focus
During the past few years, Pfizer has been restructuring its operations. It has carried out cost-cutting moves and spinoffs. In the latter category, it separated from its generic-drug business. That unit has since been merged into Mylan to create a new entity, called Viatris (NASDAQ:VTRS).
Pfizer has even rebranded itself, creating a new logo which actually looks like the double helix of DNA.
But for its strategy to work, Pfizer needs a robust pipeline, and there is good news on that front. Specifically, the company has 92 drugs in clinical trials, and the candidates span a wide array of indications, including oncology, rare diseases, vaccines, inflammation, anti-invectives and immunology.
The company’s pipeline is one of the main reasons that Mizuho Securities analyst Vamil Divan has a “buy” rating on Pfizer stock. According to his latest report: “Pfizer is evolving into a pure-play innovative biopharma company…”
His price target on the name is $43.
The Valuation of Pfizer Stock
Pfizer remains a highly profitable company, and the valuation of its stock is low. Consider that its forward price-earnings ratio is only 11.25 times. The dividend is also attractive, yielding 4.35%.
In other words, for those investors looking for a play on healthcare, Pfizer stock really does look compelling right now.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.
