PFE with Nobias technology: Can COVID-19 Sales Continue to Push Pfizer Higher?
Pfizer (PFE) is one of the most iconic big-pharma stocks. This is a behemoth of a company, with a market cap of $255.6 billion. And, Pfizer shares have experienced a significant rally throughout 2021, up 21.46% on a year-to-date basis, meaning that PFE has beaten the broader markets by a meaningful margin. However, prior to this year, PFE shares were well known for chronic underperformance.
From 2015-2020, PFE shares were relatively flat (during this same period of time, the S&P 500 posted gains north of 80%). This relatively poor share price performance was justified by flat bottom-line growth. In 2010, Pfizer produced earnings-per-share of $2.23. In 2020, the company’s earnings-per-share totaled $2.22.
Obviously this isn’t the type of growth that investors were looking for during one of the longest secular bull markets in history. However, PFE’s growth has perked up nicely, driven largely by its COVID-19 vaccine success, and with that in mind, we wanted to take a look at the company to see what the blue chip (4 and 5-star rated) analysts that the Nobias algorithm checks have to say about the company and whether or not 2021’s rally is sustainable or will prove to be an aberration.
One of the most bullish reports that we came across related to Pfizer was recently published by Nobias 5-star rated analyst, Alex Carchidi, at The Motley Fool. In his article, Carchidi posed the question, “At Less Than $50, Could Pfizer Reach $100 Before 2025?” When attempting to arrive at a $100 price target, Carchidi took a close look at Pfizer’s fundamentals to see whether or not 100+% gains from today’s share price of $44.71 are possible. He highlighted the company’s bottom-line performance over the last year saying, “The company's trailing diluted earnings per share (EPS) expanded by 50.32% in the last 12 months, and it would be very surprising for a business the size of Pfizer to be able to sustain such rapid growth. But, with sales of its coronavirus vaccine estimated to bring in approximately $33.5 billion in new revenue during 2021 -- compared with $41.9 billion in total revenue in 2020 -- we aren't in normal times.”
Carchidi notes that vaccine related demand will likely remain high in the coming years as more and more individuals become vaccinated and likely require booster shots. He also touched upon the company’s pipeline assets saying, “In the second quarter of 2021 alone, Pfizer chalked up three new approvals, and it currently has seven programs in registration, awaiting the final regulatory approval before launch.”
Carchidi also highlighted his belief that margin improvement will bolster earnings growth over time, saying, “Furthermore, since Pfizer spun off its underperforming generic drug-manufacturing subsidiary, Upjohn, in late November 2020 (joining it with Mylan to form a new country called Viatris), it won't be facing as much pressure on its margins. So, I'll be assuming that the company's EPS will continue to grow at 25% year over year -- still quite quick, despite being much slower than its recent pace.” He went on to highlight PFE’s strong balance sheet and financial position, noting that shareholder dilution via equity sales is unlikely in the near-term because of the company’s “$21.7 billion in liquid funds”.
Carchidi doesn’t believe that PFE will use buybacks to decrease its float, largely because of its high dividend payout ratio which puts significant constraints on management’s ability to use cash flows for much else than R&D and dividend payments.
So, with a relatively flat outstanding share count in mind, Carchidi surmises that PFE would need to earn roughly $4.57/share by 2024 to generate a $100 share price (assuming that the stock’s trailing ~22x price-to-earnings multiple remains in place over the next 4 years or so). For this to happen, PFE will need to generate a 15.53% earnings-per-share CAGR from 2020-2024. Being that the current Wall Street consensus estimate for 2021’s EPS is $4.01, Carchidi’s 2024 target seems possible. However, it’s important to note that right now, analysts are calling for -10% bottom-line growth in 2022 and another -6% growth rate in 2023, as the massive vaccination demand from 2020/2021 wanes.
Ultimately, with this in mind, Carchidi arrived at the conclusion that a triple digit share price being attached to PFE shares in the near-term is an unlikely outcome. However, he did say, “So, while it's possible for Pfizer's stock to reach near $100, it probably won't happen anytime soon if it keeps paying a dividend. Nonetheless, the future amount of incoming revenue means that there are probably still large shareholder returns ahead. In other words, Pfizer could still be a highly lucrative stock to own, even if its chances of reaching triple-digit prices are largely theoretical for the time being.”
One of the major growth catalysts that the credible authors that we follow who have recently covered Pfizer continue to harp on in the COVID-19 booster approval. In a recently published article, Dan Weil, a Nobias 4-star rated author, highlighted a continued push by Pfizer’s rival Moderna, who is also famous for quickly arriving at an effective mRNA COVID-19 vaccine, for the FDA to approve booster shots. He wrote, “Cambridge-Mass.-based Moderna said it “has initiated its submission to the U.S. Food and Drug Administration for the evaluation of a booster dose of the Moderna COVID-19 vaccine (mRNA-1273) at the 50 µg dose level.”’
Pfizer has been ahead of the game when it comes to FDA approval, relative to Moderna, throughout the COVID-19 vaccine race and with that trend in mind, it stands to reason that any booster approvals would be granted to PFE first. However, Weil pointed towards a recently published study which showed that Moderna’s booster was much more effective than Pfizer’s.
Weil wrote, “Moderna showed that Moderna’s produced more than twice the antibodies of Pfizer/BioNTech’s.” He continued, saying, “‘Higher antibody titers were observed in participants vaccinated with 2 doses of mRNA-1273 [the Moderna vaccine] compared with those vaccinated with BNT162b2 [the Pfizer/BioNTech] vaccine,” the JAMA article read.” Furthermore, he notes that the report concluded, “Across all age categories, previously uninfected participants vaccinated with mRNA-1273 had higher antibody titers compared with those vaccinated with BNT162b2.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
In short, while Pfizer won the FDA approval race for the initial vaccine, there is a chance that Moderna’s higher efficacy allows it to take the lead in terms of its booster shot. Another issue with boosters is that regulators and vaccination advocates across the world continue to highlight the need for a higher percentage of the global population to be granted access to their initial COVID-19 vaccines before individuals in weather countries receive booster shots. This debate is likely to rage between policy makers for the foreseeable future.
This means more uncertainty for PFE investors who’re looking for a clear growth catalyst into 2022 and beyond. However, even with this in mind, when looking at the credible analysts that we track with the Nobias algorithm, the vast majority of reports posted include bullish opinions.
Right now, the bias of the credible author community is 86% bullish. However, what’s odd about this is that the average price target of the credible analysts that we track for PFE is $42.67 right now. That’s actually 4.5% below the current share price of $44.71. This implies that the blue chip (4 and 5-star) Wall Street analysts that we track are leaning bearish on PFE shares. This toss-up shouldn’t be surprising, with all of the uncertainty surrounding shares. PFE’s COVID-19 sales have really bolstered its fundamentals over the last 12 months; however, the stock appears to be trading on forward looking earnings estimates, which point towards negative growth. So much depends on things like booster shots to continue to propel PFE’s COVID-19 segment results and until we get clarity from regulators on that front, these shares remain speculative.
Disclosure: Nicholas Ward is long PFE. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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