The coronavirus pandemic put a spotlight on the pharmaceutical sector in a way we’ve never seen before. And it made somewhat of a superstar out of Pfizer (NYSE:PFE), which along with BioNTech (NASDAQ:BNTX), had the world’s first authorized Covid-19 vaccine. Investors rewarded the blue-chip company, pushing PFE stock up more than 25% over the past year.
But now that roughly half of the world’s population has been jabbed, it’s time to consider whether the run in PFE stock has come to an end.
On Thursday, Pfizer and BioNTech released phase 3 study results showing their Covid-19 vaccine booster had an efficacy of 95.6%. While this should boost demand for the vaccine, PFE stock was up just 0.1% on the news. BNTX stock, on the other hand, jumped more than 6%.
Pfizer’s Vaccine Revenue Soared, but So Did Costs
Pfizer’s Covid-19 vaccine added $11.3 billion to the company’s top line during the first half of 2021. That made up roughly a third of overall revenue and was the main driver of the company’s 68% year-over-year sales increase.
How much longer this tailwind will last is impossible to forecast. Although half the world remains unvaccinated, the vaccination rate has slowed dramatically. Still, Pfizer estimates it will generate $33.5 billion in Covid-19 vaccine sales for the full year, meaning it expects to generate twice as much revenue in the second half of the year as it did in the first half.
Pfizer’s Covid-19 vaccine and recently approved booster aren’t the only irons in the fire. Pfizer is also developing a pill to prevent Covid-19 infection. The oral antiviral treatment is still in clinical trials. If successful, it could be a game-changer, especially among populations with limited access to healthcare. It could also mean much higher sales for Pfizer.
But as they say, revenue is vanity, profits are sanity and cash is king. Let’s zoom in for a sanity check and put those big revenue numbers in perspective.
While revenue grew by 68% in the first half of 2021, costs rose by 69%. This reflects the R&D costs for the company’s Covid-19 treatments, as well as Pfizer’s profit split with BioNTech for the co-developed vaccine.
With that said, Pfizer is still expected to report adjusted full-year earnings of $4.11 per share, an 85% increase over 2020. Cash doesn’t seem to be an issue either, as the company ended the second quarter with free cash flow approaching $11 billion.
Pfizer Looks Good Even as a Post-Pandemic Play
There’s a chance that Covid-19 is here to stay, requiring a yearly booster shot, much like the flu. That would be a positive for Pfizer, particularly if its Covid-19 pill can replace the complications that come with storing, transporting and administering injections.
That’s not a certainty, though, so you have to consider Pfizer’s business without the shiny new Covid-19 plays. Stripping out the impact of Pfizer’s vaccine revenue, total revenue for the first six months of the year still would have been nearly 12% higher over the same period in 2020.
In other words, Pfizer’s business is robust without Covid-19 in the mix. But the pandemic has supercharged the company’s potential. The fact that the pandemic looks to be more of a marathon than a sprint works in Pfizer’s favor, particularly if it’s able to get an oral antiviral cleared for use.
The Bottom Line on PFE Stock
Pfizer was strong before Covid-19 hit, but now it’s on steroids.
I don’t believe the stock’s valuation reflects the opportunity that lies ahead. Even after the 25% rise in the past year, PFE stock is trading at 10.5 times expected earnings, which is less than half that of its sector and the broader market.
Finally, PFE stock throws off a dividend yield of 3.6% after the company upped its quarterly dividend by 3% at the end of 2020. This trend is likely to continue if the need for Covid-19 vaccines persists.
On the date of publication, Laura Brodbeck did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Laura Brodbeck has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.