Pfizer (NYSE:PFE) burst into the spotlight in 2020 when the company said it was on the verge of a vaccine for the novel coronavirus. PFE stock jumped on the news, but quickly lost steam. Unfortunately, that’s been the pattern multiple times now.
It seems as though each upside rally is short-lived, as investors take profit and the stock retreats. In other words, Pfizer stock can’t maintain any sort of meaningful bullish momentum. That’s despite its leadership amid the Covid-19 vaccinations.
Granted, others have stepped up to the vaccination plate too. Pfizer’s treatment now faces competition, which may sap some of the stock’s momentum. Still, why isn’t there more traction?
More competition is absolutely the best outcome for the world — even if that’s not necessarily good news for Pfizer.
Traditionally, increasing competition does several things: It tends to increase quality, increase supply and decrease price.
The last one is a little different in this circumstance, given that we’re not necessarily talking about a free and open market when it comes to vaccination campaigns. However, the first two observations — increasing quality and increasing supply — are quite relevant during a global pandemic.
More competition pushes each company to be better than the next. That’s good. More competition also increases supply, which is great news in this case. We’ve now seen the timeline for vaccinations accelerate tremendously here in the U.S., thanks to multiple suitors stepping up to the plate.
Still, Pfizer is not exactly a growth giant. So when it came up with the Covid-19 vaccine, the stock should have seen a more robust and sustainable reaction. The fact that it’s not, despite this likely being its largest catalyst, creates some concern for the bulls.
Specifically, if a vaccine for Covid-19 doesn’t get the stock moving, what will?
Breaking Down Pfizer
At its core, Pfizer is a pharmaceutical juggernaut, commanding a $200 billion market capitalization.
This year, the company is forecast to have robust growth. However, unlike many tech stocks and industries, that growth is a one-time event as a result of Covid-19. There are other companies that are seeing an acceleration in growth and then are growing on top of that growth in the out-years. That implies that Covid-19 simply accelerated these business models rather than giving them a one-time bump.
For Pfizer, that’s not the situation.
Analysts now expect revenue and earnings to jump almost 50% this year. That’s great, especially with PFE stock trading at just 11 times this year’s earnings estimate. However, estimates call for a 14.3% drop in revenue in 2022, along with an 8% decline in earnings.
Perhaps that’s taking into account that there will be booster shots for Covid-19 in the future, since revenue and earnings aren’t expected to drop all the way back down to pre-coronavirus levels. Maybe it’s taking the rest of the world into account.
It doesn’t matter. Analysts and the market are looking at Covid-19 as a single event for Pfizer. That’s reflected in the stock price, too.
Shares are down 3.5% since the start of 2020, compared to the S&P 500’s rise of 21%. PFE stock is basically flat over the past three years.
Bottom Line on PFE Stock
The truth with Pfizer is simple: it has little to no growth. Before the coronavirus, this was as boring of a drug stock as one could think of.
The plus side to owning it is the low valuation and solid dividend yield, the latter of which sits near 4.4%. If that’s all investors are looking for, then PFE stock may be for them.
However, I just can’t get over the fact that investors have not been rewarded despite this forecasted bump in sales and earnings. Some would even argue that this is unfair. Under the circumstances, I tend to agree. After all, that’s a pretty healthy jump in its results (even if 2020 actually took a hard hit, where revenue fell about 20%).
Regardless, we are not here to decide what’s fair and what’s not. At this rate, there are better names in the healthcare space that investors should focus on instead. If PFE stock can’t rally on a catalyst this big, what will it take to get it out of the doldrums?
Investors who want the low valuation and big dividend can have it. I’m looking elsewhere for growth and returns.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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