Pfizer Earnings: Cost-Cutting Remains on Track to Adapt to COVID-19 Product Sale Declines

Key Morningstar Metrics for Pfizer

• Fair Value Estimate: $42.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Pfizer’s Earnings

Pfizer PFE reported fourth-quarter earnings ahead of our expectations, largely due to lower-than-expected research and development spending. However, we don’t expect this will continue, so there is no major impact on our fair value estimate. We view the stock as undervalued, with the market likely not fully appreciating Pfizer’s cost-cutting program, its recently launched drugs, and the potential of its pipeline, which are key factors that support its moat.

Pfizer remains on track to cut at least $4 billion in costs by the end of 2024. After the company overestimated demand for the COVID-19 vaccine Comirnaty and COVID-19 treatment Paxlovid, we believe its cost structure grew too large, which should enable successful cost-cutting. We expect the firm will produce operating margins above 30% by 2025.

In the quarter, new and core products helped lift total sales by 8% operationally, excluding the significant decline in COVID-19 products. Recently launched RSV vaccine Abrysvo and migraine drug Nurtec posted strong gains and hold significant potential. Also, the Seagen acquisition (closed Dec. 14) slightly helped sales growth. We expect Seagen’s drug portfolio to represent the largest near-term growth driver for Pfizer.

Turning to the larger core products, cardiovascular drugs Vyndaqel and Eliquis are performing well and should continue to post steady gains based on strong efficacy, despite increasing competition for Vyndaqel and growing market saturation for Eliquis. However, we expect continued declines for the breast cancer drug Ibrance due to strong competitive threats, as well as a flat outlook for the pneumococcal vaccine Prevnar due to moderate emerging competition. We project close to $8 billion in COVID-19-related sales in 2024 (in line with management guidance), despite the pandemic’s pullback.

In the pipeline, we see the majority of the strength in products that will likely show only midstage data in 2024, including products targeting weight loss and a combination flu/COVID-19 vaccine.