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%.
Sign me up for Team Stodgy.
One way of looking at this is to add up the pre-covid stuff, and then figure out a value for the two recent home runs: the vaccine and Paxlovid.
So if you go back to 2020, they had a market cap of $194b based on earnings per share of $2.87. I back some of that out, because it was from their big one-time non-recurrent gain to earnings from merging their consumer health division with Mylan in 2019, so let’s make that $2.52 in recurrent earnings, with 5.675b shares, so $14.3b. This is all pre covid vaccine (Cominarty) and pre covid pill (Paxlovid), meaning they were then trading at 13.6 times those adjusted earnings.
For 2021, the company does us the favour of telling us what their operating earnings were for everything but the vaccine (and also excluding the covid pill, since that had not contributed to sales yet): https://s28.q4cdn.com/781576035/files/doc_financials/2021/q3… (p.34)
Their projection at that point was for non-covid eps of $2.60-2.65. Given their 5.725b shares, and using the same multiple, that would give us 2.605.72513.6 = $202b. Their current market cap, with shares at $52.30, is $296b. In other words, Mr Market is assigning them about a $94b value based on their new vaccine franchise and hopes for the pill.
So what are those 2 new things worth?
The vaccine had 36b in sales, with ‘high-20s’ pre-tax margins. Let’s call that 22% after tax, or $7.9b, on sales of just over 2.3b doses in 2021. They expect to make 4b doses in 2022, so another $10b in earnings is, I think, a safe bet. What’s that worth, in total? I have no idea, but it might be worth $50b. Counterproposals welcome, but I think people will be getting the booster for a while, and Pfizer (along with Moderna) have the best product, at least right now. (To be fair, much of the credit should go to their partner, BioNTech, but fortunately for Pfizer shareholders, most of the profit will go to the company (Pfizer) that chose the vaccine candidates, did the trials, and had the manufacturing capabilities needed to make and sell billions of doses of vaccine.)
What about the pill? Paxlovid is a pretty big deal, I think. It reduces severe disease (as measured by hospitalization) by 88%, according to their pivotal trial, with roughly equal numbers of patients with symptoms since less than 5 days randomized to placebo or Paxlovid, and 66 patients hospitalized in the placebo group, vs 8 in the slightly bigger Paxlovid treatment arm. 12 deaths in the placebo group, 0 in the Paxlovid. The company will sell all the treatment courses it can make, without doubt, if they continue to sell them for $530 US per treatment course as in their first big sale to the US government (10 million treatment courses for $5.3b. Since then, they have sold 10 million more to the US government, and expect to make 120 million courses in total. If that is all at $530 per course, that would be over $60b, just this year, and they expect to make a lot more in 2023. Some will be sold for less, on the other hand, as they have promised to modulate the price according to countries’ relative prosperity. Still, they could also increase the base price; for the sake of comparison, Merck is selling their oral anti-covid pill for $700 per course, and that one reduces severe disease by 30%, not 88%. By my calculation, using the Pfizer pill in people in their high risk triial group, it cost about $9000 per hospitalization avoided, or about $30,000 per death avoided. If you figure they probably avoided about 30 ICU stays to save 12 lives, that also means it cost about $2500 per ICU stay avoided, and needless to say that’s a lot cheaper than looking after someone for several days in an ICU; and that’s not counting all the other hospitalizations avoided and, of course, the deaths avoided.
Anyways, so how much is the pill worth to Pfizer shareholders? Given that this is a moderately expensive pill, not a fairly cheap ($20) vaccine with complex storage and administration requirements, I think it’s fair to say that the profit margin is much higher, maybe on the order of 50%, and half of these profits drop to the bottom line. If that means $30b this year and more next year, their big money earner will no longer be the vaccine, it will be the pill. It can’t reasonably be worth less than $100b, I would say.
One final thought in this too long post- I have ascribed no value to the additional vaccine products that their new mRNA know-how makes possible, nor their other covid-pill that they say they have high hopes for, nor the extra franchise value of a company that has come up with 2 spectacularly successful products in the last 2 years. And no extra value to the rest of their products, despite the fact that my baseline comparison was with the company at the beginning of 2020, when the S&P 500 was at 3/4 today’s level. So despite those conservative assumptions, I would say Pfizer is worth a fair bit more than $202b for their pre-covid products (using a 13.6 multiple of earnings), $50b for the vaccine, and $100b for Paxlovid, $350b total, compared to the current market cap of $296b.
That’s my pitch. It’s now a 2.5% position for me, and I expect to add more if it follows the market any further down.