Innovation at a very reasonable price
Shares of COVID vaccine maker Pfizer (DFP) are trending steadily higher again after a roller coaster ride last year that saw stocks correct three times.
Indeed, the $300 billion biopharmaceutical giant isn’t getting as much press as it did a few years ago when it unveiled its deeply innovative Comirnaty vaccine. Undoubtedly, Pfizer received a lot of praise following the miraculous wonder that has since been taken for granted.
Pfizer’s COVID-19 cash cow may have more resistance than you think
Although the COVID-19 pandemic appears to be ending in America, it’s important to remember that the pandemic isn’t quite over yet. China has just reopened after its latest round of strict lockdowns.
The country’s zero COVID policy can be seen as extreme, given the implications on global supply chains and its own economy. Either way, the reality of seasonal COVID-19 vaccines could become the new normal, as the transition from pandemic to endemic proves difficult.
COVID-19 is unlikely to be eliminated. It mutates too quickly and spreads too stealthily. America has learned to live with it, and the disastrous lockdowns of 2020 are probably out of order, even if a future variant proves more virulent than those of the past.
While rolling up our sleeves to receive a COVID-19 vaccine becomes an annual or semi-annual tradition, Pfizer’s COVID-19 business can be a cash cow for years to come. Perhaps this could be a long-lasting business forcing Wall Street analysts to rethink their financial models.
Additionally, Pfizer’s COVID-19 pill, Paxlovid, could move towards stable cash flow. According to reports, American production of Paxlovid is about to expand. The concept of “COVID rebound” has been a hot topic around Pfizer’s oral treatment. However, I do not expect such phenomena to harm demand. Ultimately, Paxlovid is one of the few options for those who have already been infected with the coronavirus.
Even though the COVID-19 business winds down, Pfizer remains one of the most innovative companies in this market, and the 12.3 times earnings multiple doesn’t do it justice.
With a new growth mindset and investments in other intriguing companies, Pfizer stock looks eager to prove that it deserves a much higher multiple. With a stellar management team and refreshed growth capabilities, I remain bullish on PFE stock as it tries to revisit its highs near $60 per share.
However, on TipRanks, PFE receives a Smart Score rating of 3 out of 10, indicating the potential for the stock to underperform the broader market. Therefore, it is something to consider.
Did Pfizer just make a good deal with Biohaven Pharmaceuticals?
Amid the market sell-off, Pfizer announced its acquisition of Biohaven (BHVN) in a deal worth $11.6 billion. The company, which has a strong migraine business, offers Pfizer another cash cow business that diversifies its already impressive drug portfolio. More importantly, these intriguing therapies could form a foundation that fuels future innovations in Pfizer’s pipeline.
Biohaven is in much better hands under Pfizer’s leadership. Pfizer doesn’t just acquire to grab headlines. The company worked with Biohaven for many months before the deal was announced.
Even after the transaction, Pfizer has a strong balance sheet, leaving the door open for potential future transactions. As COVID-19 activity continues to generate impressive sums of money, other deals may also be considered if management can find the right solution at the right price.
Don’t overlook mRNA innovations
Finally, Pfizer is a pioneer in mRNA technology that could power the next blockbuster treatment beyond COVID-19.
Undoubtedly, a lot of attention has been paid to the potential of mRNA to fight diseases such as cancer. Although these mRNA vaccines are many years away, those looking to bet on the long-term potential of mRNA may find such exposure with Pfizer — and at a ridiculously low multiple.
While mRNA technology may seem akin to a tech company’s moon bet, I believe the upside potential of Pfizer’s mRNA talent is offered for free at these levels.
The Taking of Wall Street
As far as Wall Street is concerned, PFE stocks are looking like a moderate buy. Out of 15 analyst ratings, there are six buy recommendations and nine hold recommendations.
Pfizer’s average price target is $58.92, implying 10.2% upside potential. Analyst price targets range from a low of $50.00 per share to a high of $76.00 per share.
The basics of Pfizer shares
Even though the hype is fading, Pfizer continues to push forward with its growth strategy. Whether it’s mergers and acquisitions or organic initiatives, the current state of COVID-19 activity, or measures to improve the state of the pipeline, Pfizer is firing on all cylinders.
At such depressed levels, the risk/reward ratio is hard to bridge, given the caliber of technologies that PFE stocks will grant you exposure to.