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During the pandemic, it was one of the best known. S&P 500 companies in the world. Famous for being the first to develop an FDA-approved Covid vaccine, Pfizer (NYSE: PFE) quickly became a household name.
Today, the pharmaceutical giant's market capitalization has plunged more than 50% from its Covid-era high of $333.8 billion. Now, at around $150 billion, it no longer occupies a place among the 100 largest companies in the world.
When the pandemic ended, the huge influx of revenue from vaccine sales slowed. In the years that followed, the stock price fell to its lowest level in 10 years. But Pfizer is not just a vaccine company. It also develops treatments for a variety of medical conditions such as cancer, sickle cell anemia, and arthritis.
So is the share price drop indicative of broader problems or simply an expected post-Covid correction?
Business as usual
Pfizer does not appear to be struggling as its revenue declines. In 2022 it acquired the immunoinflammatory company Arena Pharmaceuticals and the following year, Seagen, a specialist in oncology.
But vaccines remain one of its biggest areas of focus. Its success during Covid means it is well positioned to be the company of choice for vaccine development. It currently has a strong pipeline for the development of new mRNA-based influenza and RSV vaccines.
Valuation
The price drop means the stock is now trading at 67% below fair value based on future cash flow estimates. Additionally, earnings are expected to grow at a rate of 15.7% annually.
This gives the stock an attractive price-to-earnings (P/E) ratio of 13. As such, analysts expect price growth of 25% on average over the next 12 months.
Challenges
Like many pharmaceutical companies, Pfizer faces the looming and terrifying patent cliff. As the expiration dates of its major drug patents approach, it faces the risk of competition from generics and biosimilars.
It not only faces competition from generic developers, but also from major pharmaceutical players such as merck, Johnson & Johnson and Novartis. You can't depend on another pandemic to boost sales; If you hope to stay relevant, you need to outperform your competitors.
In the past, its reputation has suffered damage from the high prices of EpiPens and anti-cancer drugs. With a recent uptick in debates over healthcare pricing in the United States, a forced reassessment of its pricing model could limit revenue.
my verdict
Pfizer remains a solid company that appears to be performing well and expanding effectively. The 6.5% yield makes the current low price especially attractive. Picking up some cheap stocks now could set an investor up for lucrative returns for years to come.
There are certainly challenges, particularly those related to the broader controversy over health care in the United States. However, the company's worst losses appear to have ended with the stock trading higher during the third quarter of this year. If the economy enjoys a boost in 2025 under the new Trump administration, it will benefit.
With Christmas approaching, I don't have any extra money to invest in new stocks right now. However, for investors looking to diversify into US pharmaceuticals, I think Pfizer is worth considering.
