Pfizer (NYSE:PFE) has seen its valuation fluctuate through 2020 as news of COVID-19 and the company's peer leading vaccine and its revenue potential have hit the airwaves. That fluctuation has clouded the company's true business value, however, as we'll see throughout this article, the company has a unique portfolio outside of its vaccine.
Pfizer FY 2020 Results
Pfizer has continued to perform incredibly well in 2020, supported by the vaccination along with the company's other operations.
Pfizer Revenue - Pfizer Investor Presentation
Pfizer saw its revenue grow 8% YoY excluding the impact of the company's consumer businesses and COVID-19 vaccine. Among the company's top performing businesses were biosimilars which grew 68% YoY operationally. Additionally, the company's Vyndamax drug saw $1.3 billion in sales (170% operational growth).
The forecast is for $1.5 billion in peak sales in several years, although forecasts indicate the potential for that to be much higher.
Pfizer COVID-19 Vaccine
Among Pfizer's most impressive accomplishments for 2020 is its COVID-19 vaccine.
Pfizer COVID-19 Forecast - Pfizer Investor Presentation
Pfizer's COVID-19 vaccine represents the first vaccine authorized for use in developed markets, as a collaboration between Pfizer and BioNTech (BNTX). As of year-end 2021, 65 million doses were supplied, and, based on a 6-dose label, the forecast is for ~2 billion doses by the end of 2021. That's expected to generate ~$15 billion in revenue.
There is the potential, to maintain immunity, for this vaccine to remain annually. That could combine with a dramatic increase in demand for doses (the 2-dose vaccine could need >10 billion doses annually). Now demand for doses and manufacturing will pressure profit margins if the vaccine becomes an annual requirement, but in the short-term, it could be valuable.
Pfizer R&D
Pfizer's R&D business has also continued to perform incredibly well.
Pfizer Clinical Trial Success - Pfizer Investor Presentation
Pfizer's Phase 1 average hasn't improved or decreased significantly. However, the company's Phase 2 and Phase 3 businesses have improved dramatically, especially the company's Phase 2, improving the company's end-to-end success rate to more than 2.5x the 2019 industry benchmark. That's also 4x where the company was through 2015.
The company expects that its pipeline will lead to 6% annualized revenue growth through 2025 not counting its COVID vaccine. Over the 5 year time period, that's expected to lead to almost 34% revenue growth for the company.
Pfizer Financial Positioning
Pfizer's financial results have been incredibly well to-do, helping the company's financial positioning.
Pfizer Financial Positioning - Pfizer Investor Presentation
The company's revenues increased 11% YoY to $11.7 billion 4Q 2020 results. The company's adjusted cost of sales went up 31% YoY and the company's adjusted R&D expenses went up 24% YoY. That resulted in significant EPS growth, the company's adjusted EPS growth was more than $1.6 / share annualized (P/E ~20).
Pfizer 2021 Guidance
Pfizer's 2021 guidance is for significant growth.
Pfizer 2021 Guidance - Pfizer Investor Presentation
Pfizer expects 2021 revenue of ~$60 billion with adjust cost of sales as a % of revenue of ~32.5%. Adjusted R&D expenses are ~$9.5 billion and adjusted SI&A expenses are ~$11.5 billion. The company's tax rate is expected to be ~15%. Overall adjusted diluted EPS are expected to be ~$3.15 annualized, which would mean a low double-digit P/E.
That represents significant YoY growth. COVID-19's vaccine sales are expected to be ~15% of next year's diluted EPS representing continued strong earnings outside of the company's COVID vaccine. This can be expected to continue growing in upcoming years providing even stronger returns.
Pfizer Return Potential
Pfizer's return potential is based on its strong asset base, and continued growth, along with the potential of its COVID-19 vaccine.
Specifically, the company's adjusted 2021 guidance give it a very low double-digit P/E. Not counting the company's COVID-19 vaccine it's P/E is ~13. That's incredibly respectable. The company's COVID-19 vaccine will continue to provide strong EPS over the upcoming years. That means the company has the potential to provide near double-digit returns going forward.
Pfizer Risk
On the flip side, however, Pfizer has significant risk worth paying attention to. The company spends nearly $10 billion annualized on R&D to remain competitive and protect its earnings. That's ~15% of the company's revenues. Even with that spending, as the company's clinical trial success rate shows, there's no guarantee it'll be successful.
That risk, and the company's other wealthy competitors, are always worth paying close attention to.
Conclusion
Pfizer has an impressive portfolio of assets that are generating strong adjusted earnings. The company, without its COVID-19 vaccine, is earning roughly $2.5 annualized EPS. Counting its vaccine, its P/E ratio drops down towards 10 implying the potential for double digit returns. That comes with the company's continued heavy investments in its business.
The company has a strong path forward for its investments. The company is continuing to invest heavily and should see continued growth for its businesses. Not only is it improving its assets, it's also improving its operating strength. Going forward, we expect this combination to help support strong shareholder returns.
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