While a 25-bps interest-rate hike announced on Wednesday by the Federal Reserve Chair Jerome Powell hardly came as a surprise, market participants seem to have gone overboard over a simple acknowledgment that inflation “has eased somewhat” and “the disinflationary process” had started.
While the Fed chair also cautioned that it would be “very premature to declare victory or to think we really got this” and expressed the need for “substantially more evidence to be confident that inflation is on a sustained downward path,” the tweak in his previous language was enough for the market bulls to be in action.
Justified or otherwise, investors’ belief that the Fed will not be able to keep interest rates high for long has been so intense that Nasdaq Composite jumped to its highest level in five months.
However, Karen Dynan, an economist at Harvard University, who served in the Obama administration, expressed his concern that “the market view is based more on hope.” With the Fed wary of “the risks of doing too little,” the market’s relapse into a renewed bout of panic and volatility seems likely in the foreseeable future.
Hence, investing in attractively valued shares of fundamentally strong, time-tested, and profitable businesses, such as Pfizer Inc. (PFE), could ensure consistent, risk-adjusted returns.
As a world-renowned research-based biopharmaceutical company, PFE discovers, develops, manufactures, sells, and distributes biopharmaceutical products, such as medicines, vaccines, and other therapies. The company operates through two segments: Biopharma and PC1.
Over the past three years, PFE’s revenue has grown at a 34.9% CAGR. During the same period, the company also registered EBITDA and net income growth of 46.5% and 25.1%, respectively.
The stock has dipped 10.8% over the past six months to close the last trading session at $44.34.
Let’s closely examine the factors that make it worthy of investment.
Record Breaking Results
During the fiscal year 2022, due to contributions from Paxlovid and Comirnaty, which offset a 7% reduction due to foreign exchange, PFE increased its revenues by 23.4% year-over-year to a record $100.33 billion. Ten medicines or vaccines that generated revenues of more than $1 billion each helped the company achieve this feat.
PFE’s income from continuing operations during the previous fiscal year increased 39.8% year-over-year to $31.40 billion. The company’s adjusted income rose more than 62% year-over-year to $37.72 billion, or $6.58 per share.
Attractive Dividend Payouts
On December 9, 2022, PFE announced its regular quarterly dividend of $0.41 per share of common stock, payable on March 3, 2023. The first-quarter 2023 cash dividend will be Pfizer’s 337th consecutive quarterly dividend.
PFE pays a dividend of $1.64 per share annually, translating to a yield of 3.73% at the current price. This compares to the 4-year average dividend yield of 3.63%. The company’s dividend payouts have increased at 5.5% CAGR over the past five years.
Reasonable Valuation
In terms of its forward P/E, PFE is trading at 12.24x, 40.2% lower than the industry average of 20.46x. Likewise, the stock’s forward EV/EBITDA multiple of 8.20 is 39.8% lower than the industry average of 13.62., while its forward EV/Sales multiple of 3.48 is 16% lower than the industry average of 4.15.
Moreover, PFE’s forward Price/Sales and Price/Book multiples of 3.47 and 2.66 also compare favorably to the respective industry averages of 4.87 and 2.86.
Excellent Capital Allocation by Management
PFE’s trailing 12-month gross profit margin of 65.90% is higher than the industry average of 55.48%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 43.42% and 31.27% comfortably exceed the industry averages of 3.91% and negative 5.84%, respectively.
Additionally, PFE’s trailing-12-month ROCE, ROTC, and ROTA of 36.94%, 19.53%, and 16.06% compare favorably to the respective negative industry averages.
POWR Ratings Reflect Robustness
PFE’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PFE has an A grade for Value, consistent with its attractive valuation.
PFE has a B grade for Quality, in sync with its higher-than-industry profitability.
PFE ranks #23 of 171 stocks in the Medical - Pharmaceuticals industry.
Click here to see the additional POWR Ratings for PFE’s Growth, Stability, Sentiment, and Momentum.
Bottom Line
With an optimistic outlook for 2023, PFE expects to set records once again with an unprecedented number of anticipated launches of new products and indications, including recent regulatory filing acceptances for Prevnar 20 Pediatric, its RSV vaccine for older adults, Etrasimod, and its Pentavalent Meningococcal Vaccine.
PFE expects top-line growth of 7% to 9%, excluding its COVID-19 products and anticipated foreign exchange impacts. With increasing investments behind its launch products and pipeline, Chairman and Chief Executive Officer Dr. Albert Bourla looks forward to the company’s “continued robust growth through the rest of this decade and beyond.”
In addition, robust financials, capital discipline, attractive valuation, income generation track record, and the relative immunity of its demand and margins to potential economic downturns make PFE an attractive investment option for solid risk-adjusted returns.
How Does Pfizer Inc. (PFE) Stack up Against Its Peers?
While PFE has an overall POWR Rating of B, which equates to a Buy, investors could also consider looking at its A-rated industry peers: Johnson & Johnson (JNJ), AbbVie Inc. (ABBV), and Bristol-Myers Squibb Company (BMY).
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PFE shares were trading at $44.20 per share on Friday morning, down $0.14 (-0.32%). Year-to-date, PFE has declined -12.95%, versus a 8.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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