Pfizer At Attractive Valuation
- YOY Pfizer is down on revenues and cash flow, stock price reflecting such.
- Guidance lowered for 2020, but operations becoming streamlined.
- Coronavirus fears affecting overall market and will continue to draw down share price.
- Strong dividend for pharmaceutical company that will continue payouts.
Pfizer (NYSE:PFE) has fallen considerably over the last few months due to uncertainty of business and most recently a miss on Q4 earnings that has been a driving factor in the company's nearly 20% decline in share price since January 28 when they were released.
The adjusted earnings of $3.11 billion for Q4 were a bit off of estimates at $3.24 billion on revenues of $12.69 billion (-9.2% YOY). Losing exclusivity on critical drugs, Pfizer business took a major hit that is reflective of it.
Full year 2019 revenues dropped to $51.8 billion, reflecting a 1% operational decline represented through a 8% operational growth from Biopharma division countered by a 16% decline in operational revenues from Upjohn.
The key to focus on here is the growing Biopharma division that is remaining after the Upjohn spin-off with Mylan (MYL). With impressive growth and Pfizer now concentrating on the Biopharma business, the future is looking up.
The guidance provided by Pfizer has investors concerned. Loss of revenues in Upjohn and losing market exclusivity for Lyrica have had a detrimental effect on the share price.
Pfizer expects its adjusted earnings per share to be roughly $2.87 with guidance for the revenue is projected to be approximately $49.5 billion. However, the company is taking a more streamlined approach and focus towards the Biopharma division. The soft guidance is projecting a decline overall from the company's output, but it will be interesting to see how the new focus plays out over 2020.
(Source: Trading View)
At $35, the share price is sitting at a key level that has been in place for the past 2 years. The company has been trading in a fairly volatile range trending upwards since 2013, making 10%+ gains over weeks followed by losses. Recently, we saw a major market pullback and PFE drop below $33 for the first time in almost 2 years, signaling to me that a buy opportunity was upon us as the rest of the market was panicking. As Rothschild once said, "When there is blood in the streets, buy". The coronavirus really drove the overall market down, but with talks form the FDA it looks like biotech and pharma companies are starting to rally around Trumps want to push approvals forward.
Looking at the technical side of it, the MACD and bollinger bands are both signaling buys and move back upwards from $35. I am projecting a trend back up towards $38 in the next 3 months based off historic movement. Sitting at a price level that has had consolidation periods in the past two years indicates to me that the $35 level will continue to hold.
(Source: Trading View)
Additionally, PFE has an attractive dividend. As mentioned previously in my Biotech Dividend Giants article, I saw Pfizer an attractive buy at $39 when it had a 3.8% dividend. With the price just over $35, the company is now posting a dividend of $1.52 annually at a 4.4% yield. Investors can capitalize on this opportunity to capture both share appreciation from Pfizer's growth that I am projecting as well as the strong dividend of 4% that is will not go away. Pfizer has paid out a dividend that has increased YOY for the last 10 years, posting an increase in January to the dividend amount for 2020 to continue the trend.
Just last week, Pfizer announced that the FDA has approved their NDA for Advil Dual Action with Acetaminophen (ibuprofen 125 mg/acetaminophen 250 mg). Sales from this product will start to be generated in 2020 in a tough and crowded market.
This week, the FDA announced that it has accepted Pfizer's application for a novel pain medication, Tanezumab, for the treatment of patients with chronic pain due to moderate to severe osteoarthritis. More than 27 million Americans living with osteoarthritis, with currently available treatment options for moderate-to-severe OA that do not meet the needs of all patients forcing many to cycle through multiple therapies to find relief from their pain.
Changes to the Board of Directors have occurred over the past month with James Quincey and Susan Hockfield joining the BOD. With revamped focus on Biopharma, spinoff of Upjohn and revitalized view on the future, Pfizer is looking to improve. Both members are world executives with impressive resumes that can bring much needed perspective on new growth and development.
EU Commission approves Vyndaqel for transthyretin amyloid cardiomyopathy. This is the first and only approved medicine proven to reduce mortality and frequency of cardiovascular related hospitalizations in adults with wild-type transthyretin amyloid cardiomyopathy. Vydaqel produced $473 million in revenues in 2019, with reports projecting sales estimates to peak at $1.5 billion in the coming years.
Closing of the Upjohn-Mylan Combination where the integration planning is progressing well and remains on track for mid-2020 close.
Key Pipeline Catalysts
- Penelope-B and PALLAS Phase III readouts are projected to occur in late 2020.
- Abrocitinib in Atopic Dermatitis (JADE Compare) tope line results are projected in mid-2020 with regulatory filings by YE 2020.
- Anticipated Phase III launch in Hemophilia A and DMD in 2020 with ongoing Phase III trial in Hemophilia B.
- Braftovi/Mektovi in 1L Colorectal Cancer where the Phase II open-label single-arm study results are projected to be presented at a medical congress in the second half of 2020.
- Immunokinase POC (proof of concept) readouts projected in second half of 2020.
- The 20-valent vaccine candidate in adults is on track for BLA submission by YE 2020.
- Expecting a POC readout in Q2 for Maternal RSV vaccine candidate that is quickly moving into Phase III
Upjohn is the coming spinoff of Pfizer with Mylan that is projected to close in the next few months. With projected revenues of up to $8.5 billion and an adjusted EBITDA of up to $4.2 billion, Upjohn should do well on its own. Upjohn will be comprised of key generic drugs held by Pfizer such as Lipitor (atorvastatin calcium), Celebrex (celecoxib) and Viagra (sildenafil), and proven commercialization capabilities, including leadership positions in China and other emerging markets.
The newly formed Upjohn entity will be entering into a fairly competitive space but it does have the advantage of size behind it. Industry competition includes Perrigo (PRGO), Endo (ENDP) and Mallinckrodt (MNK) among others. Combining Pfizer's product catalog given to Upjohn with Mylan's strong foothold in the US and Europe, the new entity will be expected to be a global market leader from the start.
Conclusion and Risk
As with every pharmaceutical company, the FDA remains a constant concern. Upcoming loss of exclusivity also looms on the horizon for Pfizer as several products are coming towards their end of controlling the market.
2026 is several years away, leaving the executives at the company plenty of time to continue developing the pipeline, focusing on the Biopharma growth and preparing for the hit that will come. Then again, that is several years of exclusivity that is going to benefit the company greatly. Focusing on the pipeline will be critical in coming years.
With over 20 late stage products and 9 on the verge of approval, Pfizer is looking positive.
The newly aligned goals and focus will drive greater success in the Biopharma division and continue to drive the company forward. With a new leadership group, streamlined product offering and large product pipeline, Pfizer is set to continue the trend upwards back over $40.
I remain bullish on the Pfizer with a short-term price target of $38 by Q3 2020, and 1-year price target of $40.
This article was written by
Analyst’s Disclosure: I am/we are long PFE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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