We came across a bullish thesis on Pfizer Inc. (PFE) on gurufocus by Akim Guerreiro. In this article we will summarize the bulls’ thesis on PFE. Pfizer Inc. share was trading at $29.16 as of Sept 12th.
Piotr Kowalski/Shutterstock.com
Pfizer Inc. (PFE) represents an attractive investment opportunity despite its poor stock performance in 2023, highlighted by the company’s substantial 5.80% dividend yield, which has drawn significant market attention. This yield is unusually high due to the company maintaining elevated dividend payments post-pandemic and a 40% decline in its stock price last year. Pfizer currently spends about $9 billion annually on dividends, even though its free cash flow fell sharply to $4.8 billion in 2024, from $29.9 billion in 2021 and $26 billion in 2022. The decline in Pfizer’s stock was triggered by the normalization of the COVID-19 pandemic, which led to a drop in vaccine sales and a subsequent decline in revenue, earnings, and cash flow. Despite these challenges, Pfizer is well-positioned for a turnaround due to its strong pipeline and potential growth catalysts.
Looking ahead, Pfizer is advancing a drug for Duchenne muscular dystrophy in Phase 3 clinical trials, which could drive significant growth given the market for these treatments is projected to expand by 33% annually over the next decade. With no direct competitors having FDA-approved treatments for this condition, Pfizer could emerge as a market leader. Moreover, the company has the financial strength to pursue strategic acquisitions, such as the recent $43 billion acquisition of Seagen Inc., which, despite increasing its debt load, adds a promising oncology pipeline that could enhance future revenues. While investors are concerned about Pfizer’s rising debt amid a high-interest-rate environment, this strategic acquisition positions the company for long-term growth.
From a financial standpoint, Pfizer’s performance is expected to rebound. Although the company’s EBITDA and net income dropped due to revenue declines and inflationary pressures, forecasts indicate a 36% increase in EBITDA in 2024 to $21.2 billion, returning it to pre-pandemic levels. Free cash flow is also projected to recover, reaching $10.7 billion in 2024 and continuing to grow in subsequent years. This recovery should alleviate concerns about dividend sustainability and provide the financial flexibility needed for strategic investments.
From a valuation perspective, Pfizer’s stock is highly attractive. Currently trading at approximately 10 times forward EBITDA, its valuation has reverted to levels seen between 2013 and 2018. However, given the company’s expected profitability recovery, strong pipeline, and strategic M&A activities, Pfizer’s shares could appreciate significantly, potentially achieving double-digit annual growth over the next few years.
Despite some risks related to debt levels and potential interest rate increases, Pfizer’s solid credit ratings and strong cash reserves provide some cushion. Moreover, the company’s robust financial outlook, attractive dividend yield, and growth catalysts make it a compelling opportunity for investors seeking exposure to the pharmaceutical sector.
Pfizer Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 84 hedge fund portfolios held PFE at the end of the second quarter which was 77 in the previous quarter. While we acknowledge the risk and potential of PFE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PFE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.
Disclosure: None. This article was originally published at Insider Monkey.