Is Pfizer’s Hidden Value Ignored By Wall Street

The rise and fall of Pfizer (NYSE: PFE) over the past few years has been truly historic. At the peak of the pandemic shares nearly breached $60 before being cut literally in half.

The success of the company’s COVID-19 vaccine drove the stock up at a time when the future of the pandemic was uncertain. But there’s more certainty now, at least in regards to COVID-19, and demand for the vaccine dwindled.

As a consequence, PFE shares dropped sharply from that 2021 peak and have continued to fall even as the stock market has bounced back. PFE is currently down around 38% year-to-date. That decline might be enough for some investors to wonder if Pfizer is undervalued.

But there is still cause for concern, mainly because the vaccine revenue won’t be replaced anytime soon. So is Pfizer stock overvalued or undervalued?

Why is Pfizer’s PE So Low?

Pfizer’s current P/E ratio is a mere 8.38x, well below the pharmaceutical industry average of 26. Compare that to competitors Merck & Co. and Eli Lilly which have P/E multiples above 80, and even fellow COVID vaccine maker Moderna at 31.81.

Pfizer’s price-to-earnings ratio so low because it’s an established firm, generating mountains of cash flow, profits and top line revenue from other drugs, as evidenced by the $2.33 billion net income the company logged in the 2nd quarter of 2023.

The share price slide are largely due to PFE financials falling short of last year’s results. For example, total revenue dropped 54% year-over-year. Even accounting for a decline in COVID vaccine revenue, that plunge is concerning.

Is Pfizer Undervalued or Overvalued?

There is a compelling argument to be made that PFE is on sale, and that’s not just due to its low earnings multiple.

The pharma company set an ambitious goal to launch 19 products in 18 months and so far Pfizer seems set to deliver on those goals. These treatments take aim at everything from migraines to multiple myeloma, with many of the drugs’ approvals already taking place earlier this year. Pfizer also has a healthy pipeline of future treatments for diseases like breast cancer and hemophilia. 

Of the 22 analysts covering the stock, the consensus price target is $41.14, suggesting Pfizer is 24.2% undervalued.

Twelve analysts rate the stock as a buy, with one of those analysts forecasting that PFE will outperform the market over the next 12 months. The most bullish forecast has the stock jumping above 2021 highs to $75.00 over the next year, a 138% increase from where the stock currently trades.

The median forecast has the stock rising 22.6% to $38.50 over the next year. There a 14 Hold ratings on Pfizer stock, but not a single Sell. Still, the most bearish forecast sees the stock dropping slightly to $32.

What is the Fair Value of Pfizer Stock?

By running a discounted cash flow forecast, we can arrive at fair value for Pfizer, which is $53 using a 5 year revenue exit model and $54 when calculating a 5-year DCF EBITDA exit.

Even a P/E multiples comparison analysis would place the fair value for Pfizer considerably higher than where the share price currently sits, at $44 per share.

In fact, regardless of whether we look at revenue multiples, EBIT multiples, price-to-sales, or price-to-book ratios, we arrive at higher prices north of $40 per share for intrinsic value.

What Will Pfizer Stock Be Worth In 5 Years?

Even if the stock declines further over the next year due to ongoing pessimism, there are still reasons for long-term investors to be bullish on PFE.

Pfizer’s recent $43 billion acquisition of Seagen was a major coup for the company. The biotechnology company has 4 products that are geared toward treating cancer.

Seagen expects to bring in $2.2 billion in revenue in 2023, representing 12% year-over-year growth. Given Pfizer’s aggressive product development and acquisition strategy, there is certainly a case for Pfizer’s stock to bounce back over the next 5 years.

A 5-year DCF Growth exit model projects Pfizer share price will be $56 per share in 5 years.

Is Pfizer Stock Projected to Go Up?

Analysts consensus of 22% over the next year may seem far-fetched to bears who aren’t impressed by the company’s performance post-COVID. The bear case would seem to be backed up by the recent news that Pfizer cut back its revenue and earnings guidance for the year.

The company dropped expectations by $9 billion and announced it’s going to engage in cost-cutting measures that include laying off a good portion of its employees.

Surprisingly, that news didn’t break the downward trend, but there still may be hope for PFE. Namely, if the stock price has already taken lowered expectations into account, PFE may be reaching the bottom.

According to a 10 year discounted cash flow forecast model, Pfizer is projected to go up to $56 per share.

What is Pfizer’s Price Target?

The analysts seem to be in agreement that if PFE does happen to drop, it won’t be much lower.

A 24% gain over the next year may be tough because Pfizer won’t see substantial revenue from its new products immediately, and the revenue from COVID vaccines and boosters has declined so fast.

However, given the company’s potential, it isn’t unreasonable to expect a 10%-15% gain over the coming year. And the stock could pick up steam as more of Pfizer’s products start to hit the shelves.

The lowest price target for the next year is $32 per share, which is above the current PFE share price. The highest price target is $75, which is likely too optimistic in light of the fundamentals.

How Much is Pfizer’s Dividend Payout in 2023?

Last but not least for long-term investors is the company’s annual dividend yield of 5.22%. That translates to a quarterly dividend of $0.41 back to shareholders, which adds another aspect for potential investors to consider before buying in.

But it won’t tip the scales for investors who believe that the stock is still overvalued despite the price drop. Absent another outbreak, Pfizer isn’t likely to see its 2021 profits repeated anytime soon. And the company has still struggled to meet more realistic recent earnings estimates.

But for long-term investors, Pfizer presents an interesting opportunity. The new products, bold acquisitions, a decent dividend, and a low P/E ratio could be enough to entice investors into taking a position in the pharmaceutical giant.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.