Is Pfizer Stock a Buy? | The Motley Fool (2024)

Pfizer (PFE 0.38%) isn't exactly a hot stock right now. Since its massive run-up during the pandemic's height, built on hopes for its coronavirus vaccine, new sources of growth haven't led to equally outsized windfalls.

But for investors, it could still be a great pickup once a few of the loftier expectations about its future are safely in check. Let's start by hearing from the bears about why the stock isn't a buy, and then look at the other side's argument.

The last couple of years have been tough

Under normal conditions, one might expect that a big pharma business, with a large portfolio of essential drugs and a recent run of best-selling medicines like the Comirnaty coronavirus vaccine, would be booming. In such a scenario, the investing thesis would be obvious -- buy the stock, because the company has a knack for making it go up consistently over time by successfully developing the right drugs for the right markets.

But that isn't the situation that Pfizer is in today. Far from being a reigning champion, it now looks closer to being a washed-up former contender. In case you haven't been keeping up with the stock price, the total return of its shares is down by 19% over the last three years, whereas the S&P 500 is up by more than 32%. In the same period, its trailing 12-month revenue rose by only 6%, reaching $58.5 billion, and net income over that period fell by 83%, reaching $2.1 billion.

What's more, it has an incredible $75.3 billion in debt and capital lease obligations. It should be able to pay off its debt in due time, but interest expenses will be a steady drag on earnings growth for quite some time. And it isn't as though Pfizer was a rapidly expanding business before its windfall from coronavirus medicines.

Nor is it the case that it can be expected to get another such windfall. The sharp declines in its revenue and earnings are largely due to the world's demand for coronavirus vaccines and antivirals falling sharply. So in the eyes of the bears, the financials and the macro environment both speak for themselves.

Pfizer won't be reclaiming the heights of its top line, bottom line, or stock price anytime soon. By the looks of it, its home runs with its coronavirus medicines were not consolidated into funding future growth opportunities, nor was there much of a residual market to retain after the initial gold rush period subsided.

There's a bright future ahead

The bearish argument against buying Pfizer is factually correct in the sense that examining backward-looking financial metrics shows the company's current performance as being dramatically overshadowed by its performance from 2020 to mid-2022. It will take a long time for that situation to change. But by the time it does, the bears will have missed a stellar buying opportunity completely. Here's why.

Pfizer currently has 31 programs in phase 3 clinical trials, and 34 programs in phase 2 trials. In its recently bolstered oncology pipeline alone, management thinks that within the next six years, it'll have a minimum of eight medicines that could be blockbuster drugs. That means they could each make more than $1 billion per year in revenue.

The company's push into cancer drug is also a big part of why it has so much debt at the moment. It financed the $43 billion acquisition of Seagen, a large oncology biotech, with debt. Once some of that burden is paid down over the next few years, and the new revenue sources come online, management plans to allocate capital more evenly between internal reinvestment into R&D and rewards for shareholders in the form of dividends and share repurchases.

Right now, Pfizer's dividend yield is high, at 6.3%. While there is a possibility that the yield could rise even further if the stock keeps dropping, sooner or later the market is going to acknowledge that the business is actually more valuable than it is now. Put differently, eventually the progress on its strategic plan to go big on cancer therapies will be undeniable, and those who wait until that point before investing will not reap the biggest rewards.

If you can tolerate waiting a few years for its new revenue sources to finish cooking, the stock is very much a buy today. Pfizer will be around for a long time, and it has a proven track record of commercializing winning medicines in all sorts of different economic environments. In the long run, it'll live up to that reputation, and those who bought it when there was great uncertainty will gain the most.