Pfizer stock: Vaccine provided long-term boost (NYSE: PFE)

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Pfizer shares (NYSE: PFE) have been linked around the $50 mark for the past few weeks, and with the pandemic on his retirement and Pfizer putting his earned money to work in a big M&A deal, he’s time to revisit a dated thesis that dates back well before the pandemic.

Summer 2019

About three years ago I last watched Pfizer which at the time announced an $11 billion deal to acquire Array BioPharma because its small molecule drugs could be used to treat cancers , among others. Its portfolio included two marketed products which are BRAFTOVI (encorafenib) and MEKTOVI (binimetinib), generating approximately $140 million in annualized product sales at the time.

The deal was expected to increase the company’s net debt to $42 billion, which is very manageable as Pfizer was posting adjusted earnings of around $16 billion at the time. Pfizer itself was expected to generate $53 billion in sales in 2019 with adjusted earnings estimated at a midpoint of $2.88 per share.

The 5.7 billion shares were trading around the $40 mark at the time, resulting in a stock valuation of $228 billion, or an enterprise value of about $270 billion. Therefore, an $11 billion deal was relatively modest, even more so in terms of immediate revenue contribution, but bolstering the range of cancer offerings was key, as notably Merck (MRK) and Bristol Myers (BMY ) dominated the field.

With shares trading at around 15 times adjusted earnings and adjustments looking relatively fair, while the balance sheet was strong, the overall outlook looked fairly fair. The shares actually fell in the mid-1930s the same summer as Pfizer’s unpatented brand and generic business, Upjohn, merged with Mylan.

Wrestling – In full swing

Pfizer shares have traded in a volatile $30-$40 trading range ever since, and broke above that range in the summer of 2021, in fact after it was already clear it would play a role. important in the Covid-19 vaccine. This was followed by strong momentum in the second half of 2021 with stocks peaking in their 60s as they had now fallen back to the $50 mark.

The company released 2019 results in line with expectations and, at the start of 2020, presented a revenue forecast for 2020 at a midpoint of $49.5 billion, with adjusted profit rather stable just below $3 per year. stock.

Fast forward to early 2021, the company reported 2020 results, with full-year revenue up 2% to $41.9 billion, with lower sales of course resulting from the divestment of Upjohn and the divestiture of the consumer products business. Based on this new basis, adjusted earnings per share increased from $1.91 to $2.22 per share, but of course these are lower earnings numbers than 2019. Divestments and Earnings unallocated resulted in dramatic deleveraging, with net debt down to $24.6 billion.

Shares performed well as the company provided a strong track record for earnings growth through 2021. The company presented earnings per share guidance of $3.10 to $3.20, with revenue expected to rise dramatically to $60.4 billion. The dramatic outlook was driven by early sales of the vaccine the company developed with its partner during the year.

The boom was really seen in 2021, and more. In February this year, the company released its full year results with revenue up 92% to $81.3 billion, some twenty billion more than initially expected. Adjusted earnings essentially doubled to $4.42 per share, or $25 billion in real dollar earnings. Growth was driven by the Covid-19 vaccine, as the total vaccines business saw revenue increase from $6.6 billion to $42.6 billion, but outside of the vaccines business, the overall business also performed well.

Large retained earnings mean net debt has fallen to $2 billion, but that even excludes more than $16 billion in stocks as investments. With some 5.8 billion shares outstanding, the company’s value reached just $290 billion, down from a valuation of $270 billion in 2019. This modest growth in valuation comes as the company has eliminated most of its debt. In fact, the enterprise value has not changed if we take into account here also the value of equity and investments.

Sure, the pandemic provided an unsustainable revenue boom, but it also brought a lot of revenue in the meantime, all very comforting.

2022 – A Better Future

While 2021 results were very strong, Pfizer presented an even more ambitious outlook for 2022 alongside the release of full year results. 2022 revenue is estimated at a midpoint of $100 billion. That guidance is based on combined revenue forecasts of $54 billion for its pandemic vaccines Comirnaty and Paxlovid, with adjusted earnings estimated at a midpoint of $6.45 per share.

Given the rock-solid balance sheet, it’s no surprise to see Pfizer earmark a significant portion of the product to add to its pipeline. In late 2021, Pfizer announced the purchase of Arena Pharmaceuticals as part of a $6.7 billion deal struck earlier this year, aimed at gaining traction in the development of an innovative immune-inflammatory disease. In April, Pfizer further announced another add-on deal with the $525 million purchase of ReViral, a biopharmaceutical company focused on developing SVR antiviral therapies.

In May, Pfizer reported strong first-quarter results with revenue up 82% to $25.7 billion as the company maintained its full-year guidance. A week later, Pfizer announced the $11.6 billion cash deal to acquire Biohaven Pharmaceutical, or $148.50 per share. With this agreement, Pfizer will acquire NURTEC, a dual action migraine treatment. Already marketed, the trend of product sales is already half a billion, even if the company loses money at the same time, this is obviously not a problem for Pfizer.

And now?

It’s very obvious to me that we have risks to the 2022 forecast amid the rapidly receding pandemic, at least in Western countries, which are typically Pfizer’s customers. I don’t consider this to be a great risk as it is to be fully expected. In fact, any further push of the pandemic down the road could actually create advantages here.

The truth is that the company has seen a flat business valuation since the summer of 2019, that is three years ago, even as the company has generated tens of billions more and probably more of a hundred billion in revenue over the lifetime of the pandemic here. The company used some of this revenue to quickly shore up its balance sheet and close a number of deals, many with longer repayment terms, helping to strengthen the pipeline and future growth profile.

With pre-pandemic earnings trending at $3 per share, there is a real risk that revenue and earnings will drop significantly. After all, if the pandemic recedes, sales and profits could be roughly halved. Even in such a case, we have a company earning close to $3 per share, trading at a mere 16 to 17 times multiple, while the balance sheet is strong and deals have the potential to pay off in years. coming.

While all of that would favor a position here, I’m being a bit cautious as the market and certainly some segments of it have been selling quite aggressively in recent weeks, when stocks were actually trading at just $45 in February, marking a relative outperformance. Therefore, I see long-term value here, but would look to enter Pfizer on relative declines here versus the market.

A modest position seems reasonable, and while I applaud the strategic decision to earmark money to further strengthen the competitive position, the reality is that many recent deals have of course yet to prove their worth. After all, even a massive $11 billion Array deal still contributes less than $400 million in product sales here.

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