In 2020, many drug stocks have behaved like pot stocks did in 2018. Investors have paid huge premiums on sales for even the promise of a novel coronavirus treatment or vaccine. But if you’re looking for value, consider Pfizer (NYSE:PFE). You can still buy PFE stock at a reasonable price.
Pfizer was trading at $37/share early on Oct. 8. That’s a market cap of $203 billion, based on 2019 sales of $51.75 billion. But the price-to-earnings ratio is just 14.5 and the 38 cent per share dividend still yields 4.1%, at a time when the 30-year government bond trades at 1.5%.
How is this possible? Blame a long history of underperformance, the efforts to improve that performance, and a preference for more speculative issues.
Pfizer’s Covid-19 Play
Pfizer is the senior partner in a Covid-19 vaccine effort built on technology from BioNTech (NASDAQ:BNTX) of Germany. Investors seeking a profit on that play have been piling into BioNTech, which had 2019 sales of $109 million but entered trade Oct. 8 at $88/share, a market cap of $21 billion. Analysts say the combination, along with Moderna (NASDAQ:MRNA), . While the market will be worth billions, the price is likely to be .
Pfizer is the manufacturing partner, with what CEO Albert Bourla, a veterinarian by training, calls Even before Phase 3 trials are done, the company has produced hundreds of thousands of doses of the BioNTech vaccine.
Bourla says his company is “moving at the speed of science.” He has acted as a public face for the effort, seeking to assure consumers the result will be . He is caught between a president who wants to rush emergency use authorizations and a public that’s increasingly .
In addition to the vaccine, Pfizer has begun Phase 1 studies of a treatment for Covid-19, an antiviral that will combine with Remdesivir from Gilead Sciences (NASDAQ:GILD), which . Pfizer says the combination has proven potent in pre-human studies.
Beyond the Coronavirus
What makes Pfizer interesting lies beyond COVID, including work on other vaccines, on immunology, .
The company also has cash. It had $22.7 billion of cash on its balance sheet
. It recently paid $200 million for a 9.9% stake in a Chinese cancer drug company, .
Pfizer’s best-known vaccine is Prevnar, for pneumonia, which had sales of $5.85 billion last year. The company recently told analysts it has three more vaccines in development, whose sales by the end of the decade.
Pfizer’s best-known drug right now is Xeljanz, an immunosuppressant (called a JAK inhibitor) for which it now has four indications, . Xeljanz has the in the industry, recording sales of $2.24 billion last year.
The Bottom Line on PFE Stock
Since becoming CEO, Bourla has sought to pull Pfizer away from its “patent cliff.” Drugs like Viagra and Lipitor have lost patent protection, and are being spun out along with UpJohn from Mylan (NYSE:MYL) into a new company called .
The pandemic forced , so if you’re an income investor you can still get in by buying Pfizer.
Selling off aging profit centers, however, puts the main company dividend, which costs $2.1 billion per quarter, . Thus, the stock hasn’t moved much.
Pfizer’s current is that 2020 free cash flow will come to $10 billion to $11 billion, cutting the dividend and indicating a yield of 3.6%. But board members like former FDA Commissioner Scott Gottlieb and investment banker Ronald Blaylock .
You might want to join them.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
has been a financial and technology journalist since 1978. He is the author of the environmental thriller , available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at .
