FKA: Pfizer

Investing Strategies Falling Knives
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Just dropped below $50 - I doubled my stake today at prices in the low 50s (I just missed the brief dip below 50), so my average price is about $53.

I think it’s a juggernaut, with covid vaccine sales that are likely to remain strong and with covid pill (Paxlovid) sales that will be low in the first half of the year but which will take off in the second half, as their production capacity expands. And although I have thought that our response to the covid crisis has been vastly overblown, I also don’t think the problem is going to go away any time soon. It will be like the flu for the foreseeable future, and we will probably want to keep getting vaccine boosters and updates, as the variants change, and, at least for people with high risk of serious disease, we will want to get prophylactic drug therapy just in case the vaccine isn’t enough (or if we have turned down the vaccine.) Pfizer has the leading product in both categories, and I don’t think their sales will drop very much, if at all, barring the arrival of a better product.

Prior to the Q4 report, their shares were at about 15 times earnings from the last 12 months. With higher Q4 earnings and a lower share price, that multiple is now less than 12.

The shares are down a few percent today because the company is projecting earnings in 2022 that are lower than what many people expected: ‘only’ up to $98-102b ($81b last year), not $106b as the market is supposed to have expected. Boo hoo. Expected eps is $6.35-6.55, or a p/e of 8. Yes, 8.

I can’t seem to find a previous discussion of this stock on this board - maybe it was on the Berkshire board? I can’t find it there either. Anyways, I think this price will look pretty good as the year goes on.

dtb

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Why now? PFE is going to have earnings and revenue drop to $4.75, $71 B by 2024. Why pay up for transient earnings, and revenue?

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Good reminder.
How badly could a fella do on this?

I can’t seem to find a previous discussion of this stock on this board - maybe it was on the Berkshire board?

I did a brief mention there, though presumably others did as well.
https://discussion.fool.com/ah-the-venerable-shoeshine-boy-i-lov…
Apologies for quoting myself:
"More seriously, it’s interesting to see how some firms seen as “old economy” are now at relatively reasonable valuations.
For anybody who remembers 1998-1999, this all rings a bell.
Pfizer, of all things, is trading at a forward P/E of 11. And they’re the ones with the new Covid treatment pill likely to cost ~$700 per treatment."
(at Yahoo, forward P/E now shown as 9.35)

In a sense it seems like a firm that’s getting ignored because it’s so darned obvious.
“Boy those vaccine makers must be raking it in. But no use looking at them, the price has probably already soared…”

Random observation:
The only downside is that, in pharma particularly, the market HATES falling earnings, or earnings seen to be falling soon.
Take a steady earner with gradually rising sales and earnings in any industry.
Add on top of that a product which will have huge earnings, but for only a couple of years. Hula hoops, say.
The stock price will often go down, not up.
Nobody wants to be owning it while earnings are falling.

This doesn’t mean that the vaccine bump will be a bad thing for Pfizer’s value or buyers today.
But it might mean that the market multiples for Pfizer remain terrible for a few years more.

Jim

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But it might mean that the market multiples for Pfizer remain terrible for a few years more.

And if you believe PFE will not fall too much more, it still has a decent 3-ish% dividend to make up for the wait.

Pete

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Most analysts like this one at Morningstar, think that Pfizer’s COVID revenues and profits will fall rapidly after 2022.

“Excluding COVID-related products, total sales fell 2% in the quarter…

“However, we expect a high degree of sales volatility when including COVID-related products, which we expect will generate over $60 billion in 2022 but fall to close to $5 billion by 2025.

“We view Pfizer as slightly overvalued, with the market likely extrapolating strong COVID vaccine and treatment sales too far into the future. “

https://www.morningstar.com/articles/1078393/covid-vaccine-s…

Pfizer has a long history of poor and expensive acquisitions to buy growth, while its own R&D lags. Mr. Market expects the old Pfizer to re-emerge after the COVID bonanza ends.

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Good comments all, thanks.

Kingran:
Why now? PFE is going to have earnings and revenue drop to $4.75, $71 B by 2024. Why pay up for transient earnings, and revenue?

If earnings are $4.75/share in 2024, that will mean that, in addition to raking in about $20b in earnings in each of 2022 and 2023 (about $7/share), the current price is 10 times those future earnings. Sounds pretty good to me. Don’t forget that EPS were $1.71 in 2020, the year before they had any meaningful revenue from covid, so at about $36 per share they were trading at about 21 times earnings.

Jim:
The only downside is that, in pharma particularly, the market HATES falling earnings, or earnings seen to be falling soon.
Take a steady earner with gradually rising sales and earnings in any industry.
Add on top of that a product which will have huge earnings, but for only a couple of years. Hula hoops, say.
The stock price will often go down, not up.

Yeah, that makes sense, and I hope that is what is happening. It would mean that the stock price may drift in the next few years. I’m ok with paying a low multiple of a lot of earnings, and waiting.

Mataropete:
And if you believe PFE will not fall too much more, it still has a decent 3-ish% dividend to make up for the wait.

Yes, .40/sh now, but quite likely to be iincreased - the cash is flooding in.

rnam quoting Morningstar:

“However, we expect a high degree of sales volatility when including COVID-related products, which we expect will generate over $60 billion in 2022 but fall to close to $5 billion by 2025.

“We view Pfizer as slightly overvalued, with the market likely extrapolating strong COVID vaccine and treatment sales too far into the future. “
…
Pfizer has a long history of poor and expensive acquisitions to buy growth, while its own R&D lags. Mr. Market expects the old Pfizer to re-emerge after the COVID bonanza ends.

That seems a little pessimistic to me. I think covid vaccines are going to be needed for a while, and Pfizer’s is cheap, safe and effective. I doubt there will be a flood of competitors. The drug (Paxlovid) is more likely to be displaced by something better, particularly with less contra-indications. But the sum of those 2 is projected to be $54b in 2022, largely because of limited production capacity for Paxlovid, so much higher in the second half of the year, and probably higher next year. For that to drop to $5b in 2025, covid would have to practically disappear as a concern, which I think is too optimistic (or pessimistic, thinking of it from Pfizer’s point of view.)

As for bad R&D, I’m not so sure. Pfizer traded at over 20x earnings for a reason, and they have developed an awful lot of great drugs. They now spend over $10b a year in R&D ($11b projected for this year), and they will have other new products coming out in the meantime, as the covid franchise loses steam. If you pay $51 for a share today, and they pay out $6 in dividends in the next 3 years, and then make only $3.00 eps from then on, I think that is a pessimistic take on the covid business and still leaves you with a 15 multiple. If they come out with more mRNA vaccines, or more antivirals (they say they have another good one in the pipeline), or anything else, I think it’s a pretty satisfactory price to pay. It’s not a steal, but in today’s market, I’ll take a fair deal.

dtb

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Glaxo and Pfizer are selling/IPO their consumer health joint venture. Glaxo rejected a $70 bln offer from Unilever, so they think it is worth more. I read somewhere that Glaxo thinks it could have a market cap of $100 bln in 3 years.

Pfizer owns 32% of the JV. The cash from the IPO could go to M&A in higher growth or return to shareholders.

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On 1/22/2022 mungofitch said:

For those who like 'em stodgier, Pfizer also looks pretty good too at $52 and change. (though obviously better at October’s prices of $41 and change, which may return).
If you look a their projections of vaccine profits, there is a chance that the run up in company value considerably exceeds the run up in price.
It’s a much more conservative wager, of course, with a bit more margin of safety and likely a more modest upside.
Single digit multiple of next year’s estimated profit and a dividend yield over 3%. The downside seems somewhat constrained even if the earnings boost starts to fade.

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Now analysts are projecting PFE earning’s for 2024 will be $3.1. The 2023 earnings are distorted by one time write-off. There is not much hope for 2025 either. At this point any outbreak of COVID seems to be the near-term catalyst. Outside of dividend, I am unable to find any immediate catalyst to own.

Having said that, I don’t really follow PFE and analyzing pharma pipeline requires specialized knowledge, which I don’t have.

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COVID revenues ended up being transient for both PFE and MRNA. In today’s Nasdaq-100 re-organization MRNA is kicked out. The below is PFE’s revenue, see the revenue cliff… same for MRNA. With uncertain future now.

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