Pfizer Earnings: Maintaining Our Valuation as Management Pressed for Evidence of Productivity

Key Morningstar Metrics for Pfizer

• Fair Value Estimate: $42.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Pfizer’s Earnings

Pfizer PFE reported stronger third-quarter results than we anticipated, largely due to significantly higher sales of covid-19 treatment Paxlovid, which also drove management to increase its top- and bottom-line guidance for the full year. However, after updating our model for Paxlovid’s solid demand in 2024 (but also a likely dip in 2025, as certain sales won’t repeat), we’re not changing our fair value estimate of $42 per share. While the firm’s strong 14% operational sales growth for its non-covid product line is encouraging, we think Pfizer faces significant competition for existing drugs, which is putting pressure on the pipeline to succeed.

We still assign Pfizer a wide moat rating, despite a series of pipeline disappointments and the uncertain value around recent acquisitions, which pressure our long-term ROIC forecast. We’re particularly concerned about growth prospects for new RSV vaccine Abrysvo (market breadth and need for repeat dosing could be more limited than we thought) and competition for the firm’s established Prevnar-based pneumococcal vaccine business (which faces new competition from Merck MRK and impending competition from Vaxcyte PVCX) and breast cancer drug Ibrance. We think the market is overly bearish about Pfizer’s ability to right the ship, and we see shares as undervalued at recent prices.

While the recall of the sickle cell drug Oxbryta certainly doesn’t improve Pfizer’s business development track record, we think management is executing on track with its $4 billion cost-cutting initiative to be completed by the end of 2024, although the value of the $43 billion Seagen acquisition in 2023 remains a key uncertainty. We include roughly $8 billion in revenue for Seagen drugs in our model in 2030, below Pfizer’s $10 billion target. We expect the firm to continue to trim its ownership of former consumer division Haleon (now at 15%) as it works to reduce debt and focus on driving research and development investment and its dividend.