Paxlovid And Vyndaqel Will Fall And Readouts Will Deliver Hope

Key Takeaways

• Increasing competition and reduced utilization of key drugs could pressure Pfizer's revenue, causing underperformance against market expectations.
  
• R&D productivity issues and a streamlined investment focus may limit future revenue growth and impact investor confidence.
  
• Pfizer's strategic focus on R&D, oncology expansion, cost efficiency, and international market penetration aims to drive revenue growth and safeguard shareholder value.

Catalysts

Pfizer Inc. discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products in the United States and internationally.

• Pfizer's stock might face pressure from declining revenues due to increased competition and lower utilization of key drugs such as Vyndaqel, Paxlovid, and other legacy products. This decrease in revenue could lead to an underperformance relative to market expectations.
  
• The company faces contracting operating expenses, which could result in lower net margins if the anticipated $7.7 billion savings by the end of 2027 do not fully materialize due to rising costs or inefficient execution in simplifying business processes.
  
• The discontinuation of the danuglipron development indicates pitfalls in R&D productivity. This may impact the perception of the pipeline's potential, affecting future earnings if new candidates fail to provide expected returns.
  
• Pfizer's decision to intensively scrutinize its pipeline and reduce the number of assets under development could hinder long-term revenue growth if significant opportunities are missed due to restrained investment focus.
  
• The ongoing volatility in the macro environment, including potential tariffs and trade policies, could affect overall cash flows and hinder the company's ability to maintain or grow its dividend, possibly leading to a reduction in investor confidence and stock valuation.

Pfizer Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Pfizer compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Pfizer's revenue will decrease by 2.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 12.6% today to 18.1% in 3 years time.
• The bearish analysts expect earnings to reach $10.4 billion (and earnings per share of $1.82) by about April 2028, up from $7.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, down from 17.6x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 17.2x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Pfizer Future Earnings Per Share Growth

Risks

• Pfizer's emphasis on improving R&D productivity and advancing their pipeline, with at least 4 regulatory decisions and up to 9 Phase III readouts expected in 2025, may lead to increased revenues and earnings growth in the future.
  
• The company's significant focus on its oncology portfolio and anticipated expansion for drugs like Padcev and Elrexfio could drive substantial revenue growth by reaching a larger patient population.
  
• Pfizer is actively working to enhance operational efficiency, reduce costs, and improve operating margins, which could positively impact net margins and earnings.
  
• The commitment to maintaining a strong commercial presence, with a focus on expanding product penetration in both U.S. and international markets, suggests potential for revenue growth despite competitive pressures.
  
• Cost-saving initiatives and strategic allocation of capital to maintain and grow dividends over time reflect a robust capital allocation strategy that may underpin shareholder value and safeguard earnings stability.

Valuation

• The assumed bearish price target for Pfizer is $24.57, which represents one standard deviation below the consensus price target of $29.25. This valuation is based on what can be assumed as the expectations of Pfizer's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $42.0, and the most bearish reporting a price target of just $23.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $57.2 billion, earnings will come to $10.4 billion, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $24.41, the bearish analyst price target of $24.57 is 0.6% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.