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Pfizer (PFE -0.56%) is a 173-year-old company with a huge portfolio of products. But the company truly became a household name rather recently — in the early days of the pandemic. That’s because Pfizer is the leader in the coronavirus vaccine and treatment market. And those products are set to generate more than $56 billion in sales this year.
Still, as we head toward a post-pandemic world, some investors wonder about the future of Pfizer’s stock. This year, Pfizer has dropped about 16%, in line with the S&P 500. But next year, with an expected decline in coronavirus product sales, will the shares follow? Not necessarily. In fact, there are three reasons Pfizer stock could crush the broader market in 2023.
It’s clear coronavirus vaccine sales probably will fall from today’s levels. Most people who wanted a vaccine already got their primary series. And once the situation shifts from pandemic to endemic, the urgency to get vaccinated won’t be as great.
That said, Pfizer predicts its coronavirus vaccine, Comirnaty, and treatment, Paxlovid, will continue to generate multibillion-dollar revenue “for the foreseeable future.” Rival Moderna expects the coronavirus vaccine market to follow that of the flu vaccine market. That means companies such as Pfizer should see recurrent revenue from those who go for annual shots.
Pfizer also has indicated it may set the price of its vaccine/booster between $110 and $130 per dose in a private vaccine market. That’s up from about $30 today. In a private market, drug distributors — instead of the government — will buy doses. And this is likely to happen next year.
There’s reason to be confident about Paxlovid sales too. Experts say the coronavirus isn’t going away. That means people will get sick and need treatment. Now, pharmacists can directly prescribe Paxlovid rather than waiting for a doctor’s prescription. This makes it easier to get Paxlovid — and that could lift sales.
All of this could equal significant coronavirus product sales next year and support share-price momentum.
The bad news is Pfizer may lose $17 billion in revenue during the 2025 through 2030 period as certain top products lose exclusivity. But here’s the good news. Pfizer plans to compensate in two ways: through acquisitions and through the advancement of its own internal pipeline.
First, let’s talk acquisitions. The company has completed key deals this year. It’s purchased Arena Pharmaceuticals, Biohaven Pharmaceuticals, Global Blood Therapeutics, and Reviral. Pfizer said business development deals may add $25 billion in risk-adjusted revenue to its 2030 forecast. And the acquisitions I just mentioned represent more than one-third of that.
Pfizer’s own pipeline could produce as many as 19 product launches within the coming 18 months. More than two-thirds of these have blockbuster potential. And of these potential launches, the 15 developed by Pfizer represent $20 billion in sales in 2030.
So, yes, Pfizer is facing a patent cliff. But revenue probably won’t drop off into the water. Instead, there’s a bridge leading higher. And that bridge is potential products developed in-house and gained through acquisitions.
Optimism about this long-term growth could draw more and more investors to Pfizer, especially at today’s valuation of only 7 times forward earnings. That’s lower than other big pharma rivals.
PFE PE Ratio (Forward) data by YCharts
The economy is weighing on investors’ minds and portfolios these days. Rising inflation and general woes probably won’t go away overnight. That means, heading into 2023, investors may favor stocks that offer a certain amount of safety.
Pfizer does this in two ways. First, it’s a drugmaker with a vast portfolio of commercialized products. People need their medications no matter what the economy is doing. So, investors may feel more confident about the earnings of a pharmaceutical company than a company more directly linked to the economy.
Second, Pfizer could satisfy investors’ appetite for dividends. This ensures passive income each year. And investors may especially appreciate this when times are tough.
Pfizer recently reported its 336th straight quarterly dividend. The company’s cash-dividend payout ratio shows the company paid out 29% of its free cash flow in dividends last year.
Free cash flow has climbed more than 100% over the past three years. As mentioned above, coronavirus product sales should remain high. All of this means Pfizer has what it takes to continue payouts. And investors may flock to Pfizer next year for safety and passive income.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck & Co. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.
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