Earlier in the pandemic, Pfizer (NYSE: PFE) stood out as an earnings and stock-market star thanks to its leading coronavirus vaccine and treatment. But these days, those products are weighing on growth — and pushing some investors to flee the stock. That’s because, as we head toward a post-pandemic world, demand for those blockbusters is on the decline.
Earlier this fall, Pfizer sounded the alarm, cutting its forecast for coronavirus product revenue this year and announcing details of a cost-cutting plan. Just this past week, the big pharma released guidance on earnings and coronavirus product revenue for next year that fell short of analysts’ expectations. And the company aims to make even deeper cost cuts than initially planned.
Pfizer shares responded by dropping to a 10-year low. Considering this latest wave of bad news, should you worry about Pfizer and avoid the shares — or is it time to buy?
Image source: Getty Images.
Pfizer’s $100 billion in revenue
Today’s troubles begin with yesterday’s successes. Pfizer’s coronavirus vaccine Comirnaty and treatment Paxlovid brought in revenue of $37 billion and $18 billion, respectively, at their peak last year. This helped Pfizer post its highest annual revenue ever, more than $100 billion.
After such a performance, seeing 2024 annual revenue forecast at a level of $58.5 billion to $61.5 billion may be particularly disappointing. And as part of this, Pfizer predicts coronavirus product revenue will total only $8 billion next year, a far cry from last year’s figures.
On top of that, Pfizer’s cost realignment plan will include an additional $500 million in cost cuts to reach cost savings of $4 billion. The company announced this effort earlier in the fall vaccination season, when it noticed lower-than-expected sales of coronavirus products. The idea was to rein in costs to match long-term revenue opportunities. The recent increase in the cost savings forecast may worry investors, as it suggests coronavirus product revenue may be even lower than the company predicted just months ago.
Pandemic versus post-pandemic
All of this may sound grim, but it’s important to put the latest news into perspective. With its coronavirus products, Pfizer served a pandemic environment. It’s very unlikely demand would remain at the same levels once the world shifted toward a post-pandemic mindset. And it’s been difficult for vaccine companies to truly predict vaccine uptake in this evolving situation, other than using demand for influenza vaccines as a guide.
These days, coronavirus vaccine coverage hasn’t reached 50% of the population, as the flu vaccine has in recent years. But it could eventually, especially if Pfizer and others are successful in producing combined flu-COVID vaccine candidates. Even if coronavirus vaccination doesn’t hit the 50% mark, the vaccine still could remain a solid source of recurrent revenue for Pfizer.
Meanwhile, other elements also are weighing on Pfizer right now — but they don’t signal negative long-term situations. Pfizer’s costs to finance the recent acquisition of oncology company Seagen are set to impact earnings, shaving off 40 cents per share. This is a headwind right now, but the Seagen addition should bring the pharma company a solid portfolio of oncology drugs that will add to revenue over time. Pfizer predicts the Seagen portfolio will start this off by generating $3.1 billion in revenue next year.
Pfizer’s time of transition
So what does all of this mean for investors? It’s clear Pfizer is going through a time of transition right now, and it may be a tough period for the company and for investors who have watched the shares decline. But the business’s long-term prospects remain bright.
In addition to the positive points mentioned above, Pfizer also is in the middle of its most aggressive series of product launches ever — with the goal of bringing 19 new products or indications to market over an 18-month period.
Yes, Pfizer faces declining sales from certain products, and the need to bring costs in line with future revenue; these factors could continue weighing on the stock in the near term. I don’t see this as a moment to sell the stock or to avoid it, though. Instead, I see it as a time to get in on Pfizer shares for a good price considering its long-term story.
Pfizer trades for about 17 times forward earnings estimates, a very reasonable level for this top pharma stock. Even if the near-term path looks bumpy, the company is preparing the terrain to deliver rewards to investors over the long haul.
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Should You Worry About the Latest Wave of Bad News from Pfizer? was originally published by The Motley Fool