- Pfizer (PFE) stock looks cheap after reporting record results from its Covid-19 vaccine.
- The rest of the year should look even better as sales ramp up for its Covid-19.
- Investors should worry about where its new CFO invests the cash.
Pfizer (NYSE:PFE) stock rose 2% after earnings beat street estimates. But it remains 20% below its November high.
The company reported adjusted income of $9.3 billion, or $1.62 per share, on revenue of $25.7 billion. All these figures were up over 70% from 2021, thanks largely to Comirnaty, its Covid-19 vaccine developed with BionTech (NASDAQ:BNTX).
Pfizer said vaccine revenue tripled to $15 billion. It estimated total sales for 2022 between $98 and $102 billion with Comirnaty sales at $32 billion. It projected $22 billion in 2022 sales from Paxlovid, its Covid-19 treatment, although that has brought in just $1.5 billion since it was approved last December.
Reporters emphasized a 10 cent per share cut in anticipated yearly profit. This may have muted the market’s reaction to the numbers. I think reporters missed the real story.
| PFE | Pfizer Inc. | $48.97 |
Cheap as Chips
Pfizer now has a newly-raised 40 cent per share quarterly dividend that yields 3.3% and the stock sells for less than 13 times earnings. The yield still beats the 30-year bond and the stock is up 23% in the last year.
Analysts emphasized the numbers on Comirnaty and Paxlovid. But the bigger question is where Pfizer will deploy the enormous amounts of cash those drugs are generating. That’s why Pfizer is trading 55% below what analysts call its fair value.
During the quarter, Pfizer finished the acquisition of Arena Pharmaceuticals for $6.7 billion, twice what Arena was selling for before the deal. It said last month it will put another $525 million into ReViral, a privately-held company that is still in clinical trials.
Stashing the Cash
More important is the hiring of David Denton as chief financial officer (CFO) starting this week. He will build the new Pfizer after spending time at Lowe’s (NYSE:LOW). Before that, he was CFO at CVS Health (NYSE:CVS), where he negotiated its buyout of Aetna.
Pfizer had $31 billion in cash and securities on its books at the end of 2021. It had just $12 billion a year earlier. That figure is going to grow even further this year. But this could be a cautionary tale.
Gilead Sciences (NASDAQ:GILD) was in a similar position several years ago after its Hepatitis-C treatments proved to be a huge hit. Gilead sold at a single-digit price-to-earnings (PE) multiple for years as it looked for places to invest the cash. The market remains unsatisfied with those investments. Gilead stock is now down over 12% from where it was five years ago despite a solid and rising dividend that now yields nearly 5%.
Moderna (NASDAQ:MRNA), the other big Covid-19 vaccine winner, is in a similar position. Its PE ratio is now 5.13 after a huge quarter that saw it report 60% of its $6 billion in revenue as net income. Moderna ended the quarter with over $10 billion in cash and short-term investments.
The Bottom Line on PFE Stock
In the near term, I see no reason not to buy Pfizer stock. Its dividend has a solid yield that is highly sustainable. The rest of 2022 looks great.
My concern is for 2023 and beyond. For Pfizer, Covid-19 was like winning the lottery. I named Chief Executive Officer (CEO) Albert Bourla my “CEO of the Year” for 2021 for the way he navigated the pressures of success.
When Bourla became CEO in 2019, Pfizer was facing an enormous “patent cliff.” Rights on best-sellers like Ibrance, Eliquis and Xeljanx were all due to expire between 2023 and 2027. Eliquis has privately been extended and Covid-19 gives Bourla and Denton a chance to restock the shelves.
Their success in doing this will determine the fate of Pfizer as a long-term investment. Buy it for income now, but watch for acquisitions. Remain cautious.
On the date of publication, Dana Blankenhorn held a long position in MRNA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.