Pfizer’s Stock Is a Buy. Here Are Six Reasons Why.

Pfizer (PFE 6.09%) stock is an investing enigma. The drugmaker’s shares have printed fresh 52-week lows consistently over the past two years, putting its stock in serious bargain territory. Speaking to this point, Pfizer’s stock trades at around 11 times forward earnings.

On the other hand, its big-pharma peer group averages 17 on this key valuation metric. Its dividend has also mushroomed this year, touching the 6.3% mark at its high water point earlier this year.

Thanks to its rock-bottom valuation and sky-high yield, Pfizer has become a hotly debated topic in the investing community. Some investors see the stock as deeply undervalued, reflecting an overly skeptical market. In contrast, others view the drugmaker’s shares as a value trap. Pfizer, after all, spent tens of billions of its pandemic windfall on bringing in new assets and still isn’t expected to post above-average top-line growth for its peer group over the balance of the decade.

Image source: Getty Images.

Are the bulls or bears on point with this stock? With Pfizer dropping 2024 first-quarter earnings yesterday, the stock stands out as a top buy for several compelling reasons. Here are six of the most important.

Six reasons to buy

Pfizer is a mega-cap pharmaceutical enterprise with a global reach. Distilling its investment thesis to a few key points is no easy feat.

Nevertheless, the following six points encapsulate the main thrust of its value proposition:

1. Economy of scale: Pfizer’s massive size provides key operational advantages, including cost efficiencies and a highly skilled salesforce. These factors contribute to the company’s ability to navigate complex supply chains and maintain competitive costs.
2. Cost-cutting initiatives: Pfizer is on track to achieve its goal of $4 billion in cost cuts by the end of 2024. These cost reductions are expected to improve operating margins. However, the market may not fully appreciate the financial benefits of this strategic cost-cutting initiative.
3. Non-COVID product portfolio growth: In the first quarter of 2024, Pfizer reported an impressive 11% operational sales growth in its non-COVID product portfolio. While the Seagen acquisition contributed significantly to this top-line growth, Pfizer is projected to continue posting mid-single-digit growth through 2025 before patent losses impact revenue.
4. Promising pipeline: Pfizer’s phase 3 trial for the breast cancer drug atirmociclib offers an opportunity to extend the company’s presence in this therapeutic area. As its first-generation drug Ibrance faces increasing competition, atirmociclib could be a key growth driver down the road.
5. Cancer Medications: Pfizer seems to be indicating that cancer medications will be its bread and butter in the decade ahead. The pharma giant plans to increase the number of blockbusters in its oncology portfolio to over eight by 2030. Cancer drugs are highly prized in the industry for their pricing power, favorable reimbursement status, and high category growth rate. Pfizer’s laser-like focus on this therapeutic area is a smart strategic move.
6. Strong performance of key drugs:
   • Vyndaqel: This rare-disease drug is performing well and is expected to maintain its position, even as competitors enter the market.
   • Eliquis: Pfizer and Bristol Myers Squibb‘s cardiovascular drug continues to gain market share, although generics may pose challenges by 2026.
   • Prevnar: The pneumococcal vaccine should continue being a cash cow for the drugmaker despite potential competition from Merck‘s vaccine V116 in the adult market.

Final thoughts

Pfizer is staring down some key patent losses later this decade, and its recent spending spree didn’t land an all-star medication like Humira, Keytruda, or Opdivo. But these headwinds aren’t insurmountable.

Pfizer has the expertise, financial resources, and experience to innovate toward strong top-line growth over the next 10 years. Its burgeoning cancer pipeline and portfolio are a testament to this fact. As a result of this favorable dynamic, Pfizer’s shares are arguably worth taking a flier on at current levels.