Three compelling reasons to invest heavily in Pfizer shares without delay.
The pharmaceutical sector can be a challenging industry. Firms need to be consistently innovative to remain pertinent as patents shielding their unique drugs expire. Pfizer (PFE), a established player in the pharmaceutical landscape, experienced a growth surge throughout the COVID-19 pandemic due to its Comirnaty vaccine and Paxlovid treatment.
Revenue and earnings have taken a dip since the pandemic's conclusion, resulting in a 50% drop in Pfizer's stock price from its peak.
Paradoxically, the ideal moment to invest in cyclical companies like Pfizer is during these low points, just before the subsequent growth surge. Although Pfizer appears to be on the cusp of significant advancements over the forthcoming years, the stock currently offers allure. Here are three reasons to consider purchasing Pfizer as if there were no tomorrow – today.
1. The business is regaining momentum
Although COVID-19 had devastating consequences for society, it proved to be a boon for Pfizer. The company's two COVID-19 products generated approximately $56.7 billion in sales in 2022, contributing to a total revenue of $100.3 billion. As the pandemic's opportunity waned, it appeared that Pfizer was struggling. You can see revenue and earnings spike and then crater in the chart below:
More pertinently, revenue and earnings hit their low points and started climbing again this year. This isn't a coincidence; through nine months of 2024, Pfizer's specialty care products have increased by 11% year over year, while oncology sales have escalated by 25%. Comirnaty sales (reported in Pfizer's primary care portfolio) have declined by 66% through nine months of 2024 compared to last year, but the number is small enough now that it's not dragging the company down.
Pfizer is focusing on oncology for growth throughout the remainder of the decade. In late 2023, it utilized its pandemic profits to acquire Seagen for $43 billion to bolster its oncology pipeline. The strategy appears to be bearing fruit so far. Management is projecting earnings growth between 10% and 18% for 2025, and analysts predict earnings will grow by an average of 14% annually over the subsequent three to five years.
In essence, Pfizer appears primed for further growth.
2. An ample dividend with robust financial resources
Investors need not invest and wait in hope of eventual profit. Pfizer is repaying its shareholders generously for their patience with a dividend that yields 6.3% at today's share price.
That might raise concerns about the dividend's sustainability, given that it's higher than most blue chip stocks. However, the figures do not support that. Management has repeatedly affirmed its plans to maintain and boost the dividend and followed through with a 2.4% increase in early December.
It's not a substantial increase, but Pfizer is focusing on paying down debt, so once its balance sheet is rejuvenated, I'd look for more dividend growth. Financially, the dividend is sound. The payout ratio is only 67% of forecasted 2025 earnings, so this wasn't an emergency raise – Pfizer can afford it.
3. Potential market-beating returns from Pfizer's current price
One might anticipate a substantial valuation on the stock market for a hefty dividend and double-digit earnings growth, but nope. Pfizer trades at just over 10 times its 2025 earnings guidance. Why? It's likely a combination of several factors. Pfizer may still carry a stigma from its post-pandemic decline. Moreover, investors may apprehend how a new government administration could affect Pfizer and the broader pharmaceutical industry.
The positive aspect is that you don't require a valuation change to realize good returns from Pfizer stock. The stock could maintain its current price-to-earnings ratio, and still deliver 20% annualized returns, sufficient to double your investment in under four years. That's 6% from the dividend plus another 14% from earnings growth.
Meanwhile, the S&P 500 trades above its historical norms, leading some to speculate about potential market downturns. I'd say the odds are that Pfizer stock will outperform the wider stock market over the ensuing years, assuming its oncology growth plan continues to progress positively, as has thus far been the case, with a strong 2025 earnings guide.
- Given Pfizer's strong performance in oncology and the projected earnings growth, now could be an excellent time for investors interested in finance and investing to consider purchasing Pfizer shares, as they might benefit from potential market-beating returns.
- Despite the challenging industry landscape, Pfizer's financial stability and robust dividend yield of 6.3% make it an attractive option for investors seeking stable income, highlighting the potential benefits of investing in cyclical companies during low points.
