Thematic evaluation
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Pfizer Inc. (PFE)

September 06, 2024

Compared to: Sanofi (SAN) | Bristol Myers Squibb Co. (BMY) | Health Care Select Sector SPDR Fund (XLV)

Our reasoning

Pfizer appears moderately undervalued based on its below-average valuation multiples, improving gross margins, and strong growth prospects in oncology and other key therapeutic areas. While the company faces challenges from patent expirations and pricing pressures, these risks seem adequately priced into the current valuation, which doesn't fully reflect the potential upside from the Seagen acquisition and ongoing cost optimization initiatives.

Key takeaways
  • Pfizer is facing significant headwinds from patent expirations, pricing pressures, and the waning COVID-19 pandemic, but is working to diversify its portfolio and reduce costs to drive long-term growth.
  • The company's profitability is declining, but the company is taking steps to improve margins and control expenses through its cost realignment program.
  • Pfizer's liquidity position is weakening, but the company still maintains a robust liquidity position with access to $15 billion in committed revolving credit facilities, providing financial flexibility.
  • The company's long-term solvency is relatively strong, but the increasing debt levels raise concerns about potential financial strain in the future.
  • The company's asset utilization efficiency is improving, as indicated by the increasing gross profit margin and EBITDA margin.
  • Pfizer's cash flows from operating activities are decreasing, primarily due to lower net income and changes in working capital.
  • The company's cash flows from investing activities are increasing, driven by significant investments in acquisitions and purchase of investments.
  • The company's cash flows from financing activities are decreasing, primarily due to debt repayments and dividend payments.
  • Pfizer faces significant risks related to R&D, regulatory approvals, and commercialization of new products and product candidates.
  • The company is facing competition from generic, biosimilar, and branded products, including potential loss of exclusivity for key products.
  • Pricing and reimbursement pressures from governments, payers, and managed care organizations pose a significant risk to the company's profitability.
  • Supply chain disruptions, manufacturing challenges, and product quality/safety issues could impact the company's operations and reputation.
  • Pfizer's future outlook is mixed, with potential for growth in its core product portfolios, but also facing challenges from patent expirations, pricing pressures, and the waning COVID-19 pandemic.
  • The company's cost realignment program and the acquisition of Seagen are expected to drive long-term growth.
  • The company's ability to navigate the evolving regulatory landscape, particularly around drug pricing reforms, will be a key challenge going forward.
Undervalued
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Evaluation summary

  1. Company Overview:

    • Pfizer Inc. is a global biopharmaceutical company engaged in the discovery, development, manufacture, marketing, and distribution of biopharmaceutical products worldwide. Its business model is centered around research and development, with a focus on innovative science-based biopharmaceutical products.
    • Pfizer's product portfolio includes a diverse range of products across various therapeutic areas, including vaccines, oncology, inflammation & immunology, rare diseases, and hospital products. Key products include Comirnaty (COVID-19 vaccine), Paxlovid (COVID-19 treatment), Eliquis, Xtandi, Nurtec ODT/Vydura, Vyndaqel family, Prevnar family, and various oncology products.
    • Pfizer's target market encompasses wholesalers, retailers, hospitals, clinics, government agencies, and pharmacies across developed and emerging markets. The company operates through two main segments: Biopharma (innovative science-based biopharmaceutical business) and Business Innovation (contract development/manufacturing and R&D services).
    • For comparative analysis, we will be using the Health Care Select Sector SPDR Fund (XLV) as a benchmark and Bristol Myers Squibb Co. (BMY) and Sanofi (SAN) as industry peers.

  2. Financial Performance:

    • Pfizer's revenue has been declining in recent quarters, primarily due to the waning COVID-19 pandemic and the transition of Paxlovid to commercial markets. However, the company is experiencing growth in its core product portfolios, excluding COVID-19 products.
    • The company's profitability has been declining, but it is taking steps to improve margins and control expenses through its cost realignment program.
    • Pfizer's return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC) have been declining in recent quarters, indicating a decline in profitability and efficiency.
    • Compared to its peers, BMY and SAN, Pfizer has generally underperformed in terms of revenue growth, profitability, and key financial metrics.

  3. Operational Efficiency:

    • Pfizer's working capital management has been inconsistent, with fluctuations in accounts receivable, inventories, and other current assets. The company is working to improve its working capital efficiency.
    • The company's cash flows from operating activities have been decreasing, primarily due to lower net income and changes in working capital. However, its cash flows from investing activities have been increasing, driven by significant investments in acquisitions and purchase of investments.
    • Pfizer's free cash flow has been declining in recent quarters, but the company is taking steps to improve its cash flow generation through its cost realignment program.
    • The company's capital expenditure has been relatively stable, with a focus on maintaining and expanding its manufacturing and research facilities.
    • Pfizer's dividend payments have been consistent, but its share repurchase activity has been declining.
    • Compared to its peers, Pfizer has exhibited lower operational efficiency, with lower free cash flow margins and higher working capital requirements.
    • Pfizer's liquidity position is weakening, as evidenced by the declining cash and short-term investments. However, the company still maintains a robust liquidity position with access to $15 billion in committed revolving credit facilities, providing financial flexibility.
    • Pfizer's debt-to-equity and leverage ratios have been increasing, raising concerns about potential financial strain in the future. However, the company's strong cash flow generation and profitability should help mitigate these concerns.

  4. Growth Opportunities:

    • Pfizer is pursuing growth opportunities through market expansion, M&A, R&D pipeline development, and geographic expansion.
    • The company's recent acquisition of Seagen strengthens its oncology capabilities and provides access to a new portfolio of products and technologies.
    • Pfizer's R&D pipeline is focused on developing innovative therapies in areas such as oncology, inflammation & immunology, rare diseases, and vaccines.
    • The company is expanding its geographic presence in emerging markets with high growth potential.
    • Pfizer's strategic focus areas include oncology leadership, pipeline innovation, and margin expansion through cost optimization programs.
    • The company is making progress on its previously announced initiatives, including the cost realignment program and the integration of Seagen.
    • Pfizer's capital allocation strategies are focused on investing in R&D, acquisitions, and shareholder returns.
    • Management's historical execution of strategic plans has been mixed, with successes in some areas and challenges in others.

  5. Risks and Threats:

    • Pfizer faces significant risks related to R&D, regulatory approvals, and commercialization of new products and product candidates.
    • The company is facing competition from generic, biosimilar, and branded products, including potential loss of exclusivity for key products.
    • Pricing and reimbursement pressures from governments, payers, and managed care organizations pose a significant risk to the company's profitability.
    • Supply chain disruptions, manufacturing challenges, and product quality/safety issues could impact the company's operations and reputation.
    • The evolving regulatory landscape, particularly around drug pricing reforms, poses a significant challenge for Pfizer.
    • Cybersecurity threats and IT system failures could disrupt the company's operations and compromise sensitive data.
    • Legal, regulatory, and tax-related risks, including from government investigations and litigation, could impact the company's financial performance and reputation.

  6. Valuation Analysis:

    • Pfizer's valuation metrics, such as P/E ratio and EV/EBITDA, are currently below the industry average, suggesting that the market is pricing in the company's challenges and risks.
    • Compared to its peers, Pfizer's valuation is generally lower, reflecting its lower profitability and growth prospects.
    • Potential catalysts for Pfizer's valuation include successful product launches, pipeline advancements, and cost reduction initiatives.

  7. Price Performance:

    • Pfizer's stock price has underperformed the Health Care Select Sector SPDR Fund (XLV) over all analyzed periods, indicating that the company has struggled to keep pace with the broader healthcare sector.
    • Compared to its peers, BMY and SAN, Pfizer's stock price has generally underperformed, reflecting its lower profitability and growth prospects.
    • Pfizer's stock price has been more volatile than XLV and its peers, indicating a higher risk profile.

  8. Future Outlook:

    • Management's guidance for full-year 2024 revenue and adjusted diluted EPS is positive, reflecting confidence in the company's ability to execute and deliver on its financial commitments.
    • Analyst estimates for Pfizer's future performance are mixed, with some analysts expecting growth and others expecting continued challenges.
    • The consensus view among analysts is that Pfizer's future performance will be driven by its ability to navigate the evolving regulatory landscape, manage pricing pressures, and successfully execute its R&D pipeline and cost reduction initiatives.

  9. Summary:

    • Pfizer is a large, established biopharmaceutical company with a diverse product portfolio and a global presence. However, the company is facing significant challenges from patent expirations, pricing pressures, and the waning COVID-19 pandemic.
    • Pfizer's financial performance has been declining in recent quarters, but the company is taking steps to improve its profitability and cash flow generation.
    • The company's growth opportunities are driven by its R&D pipeline, M&A activity, and geographic expansion.
    • Pfizer faces significant risks related to R&D, regulatory approvals, competition, and pricing pressures.
    • The company's valuation is currently below the industry average, reflecting its challenges and risks.
    • Pfizer's stock price has underperformed the broader healthcare sector and its peers, indicating a higher risk profile.
    • The company's future outlook is mixed, with potential for growth in its core product portfolios, but also facing challenges from patent expirations, pricing pressures, and the waning COVID-19 pandemic.
    • Pfizer's ability to navigate the evolving regulatory landscape, manage pricing pressures, and successfully execute its R&D pipeline and cost reduction initiatives will be critical to its future success.
Peer fundamentals 
Fundamentals
Insights
  • Pfizer's revenue is declining due to the waning COVID-19 pandemic and the transition of Paxlovid to commercial markets, but the company is working to diversify its portfolio and reduce costs to drive long-term growth.
  • The company's profitability is declining, but the company is taking steps to improve margins and control expenses through its cost realignment program.
  • Pfizer's liquidity position is weakening, but the company still maintains a robust liquidity position with access to $15 billion in committed revolving credit facilities, providing financial flexibility.
  • The company's long-term solvency is relatively strong, but the increasing debt levels raise concerns about potential financial strain in the future.
  • The company's asset utilization efficiency is improving, as indicated by the increasing gross profit margin and EBITDA margin.
  • Pfizer's cash flows from operating activities are decreasing, primarily due to lower net income and changes in working capital.
  • The company's cash flows from investing activities are increasing, driven by significant investments in acquisitions and purchase of investments.
  • The company's cash flows from financing activities are decreasing, primarily due to debt repayments and dividend payments.
  • Pfizer faces significant risks related to R&D, regulatory approvals, and commercialization of new products and product candidates.
  • The company is facing competition from generic, biosimilar, and branded products, including potential loss of exclusivity for key products.
  • Pricing and reimbursement pressures from governments, payers, and managed care organizations pose a significant risk to the company's profitability.
  • Supply chain disruptions, manufacturing challenges, and product quality/safety issues could impact the company's operations and reputation.
  • Pfizer's future outlook is mixed, with potential for growth in its core product portfolios, but also facing challenges from patent expirations, pricing pressures, and the waning COVID-19 pandemic.
  • The company's cost realignment program and the acquisition of Seagen are expected to drive long-term growth.
  • The company's ability to navigate the evolving regulatory landscape, particularly around drug pricing reforms, will be a key challenge going forward.
Analysis
  • Revenue - Pfizer's revenue is declining, primarily due to the waning COVID-19 pandemic and the transition of Paxlovid to commercial markets. - The company is facing significant pricing and access pressures from governments and private payers. - The company is working to diversify its portfolio and reduce costs to drive long-term growth. - The acquisition of Seagen is expected to contribute to revenue growth in the future.
    • Profitability
      • Pfizer's profitability is declining, but the company is taking steps to improve margins and control expenses.
      • The company's cost realignment program is expected to improve profitability and cash flow generation.
      • The company's gross profit margin and EBITDA margin are improving, indicating that the company is effectively managing its costs and improving profitability.
    • Liquidity
      • Pfizer's liquidity position is weakening, as evidenced by the declining cash and short-term investments.
      • The company still maintains a robust liquidity position with access to $15 billion in committed revolving credit facilities, providing financial flexibility.
    • Solvency
      • Pfizer's long-term solvency is relatively strong, but the increasing debt levels raise concerns about potential financial strain in the future.
      • The company's strong cash flow generation and profitability should help mitigate these concerns.
    • Operational Efficiency
      • Pfizer's asset utilization efficiency is improving, as indicated by the increasing gross profit margin and EBITDA margin.
      • The company is effectively managing its assets to generate revenue and profits.
    • Cash Flow Analysis
      • Pfizer's cash flows from operating activities are decreasing, primarily due to lower net income and changes in working capital.
      • The company's cash flows from investing activities are increasing, driven by significant investments in acquisitions and purchase of investments.
      • The company's cash flows from financing activities are decreasing, primarily due to debt repayments and dividend payments.
    • Risk Factors
      • Pfizer faces significant risks related to R&D, regulatory approvals, and commercialization of new products and product candidates.
      • The company is facing competition from generic, biosimilar, and branded products, including potential loss of exclusivity for key products.
      • Pricing and reimbursement pressures from governments, payers, and managed care organizations pose a significant risk to the company's profitability.
      • Supply chain disruptions, manufacturing challenges, and product quality/safety issues could impact the company's operations and reputation.
    • Future Outlook
      • Pfizer's future outlook is mixed, with potential for growth in its core product portfolios, but also facing challenges from patent expirations, pricing pressures, and the waning COVID-19 pandemic.
      • The company's cost realignment program and the acquisition of Seagen are expected to drive long-term growth.
      • The company's ability to navigate the evolving regulatory landscape, particularly around drug pricing reforms, will be a key challenge going forward.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-09-04)
Health Care Select Sector SPDR Fund (XLV)
  • Performance Comparison:
    • PFE has significantly underperformed XLV over all periods, with the largest underperformance occurring in the 2-year and 3-year periods. This suggests that PFE has struggled to keep pace with the broader healthcare sector.
    • PFE's performance has been inconsistent relative to XLV, with periods of outperformance in the short term (6 months) but significant underperformance in the long term (1 year, 2 years, 3 years). This suggests that PFE's performance is not consistently aligned with the broader healthcare sector.
  • Risk and Return Analysis:
    • PFE has provided lower annualized returns than XLV over all periods. This suggests that PFE has not been as profitable as the broader healthcare sector.
    • PFE has been more volatile than XLV, with higher annualized volatility across all periods. This suggests that PFE is a riskier investment than XLV.
    • PFE has experienced significantly larger drawdowns than XLV, with a maximum drawdown of 54.82% compared to XLV's maximum drawdown of 15.61%. This indicates that PFE is more susceptible to significant price declines than XLV, further highlighting its riskier profile.
  • Risk-Adjusted Performance:
    • XLV has consistently offered a better risk-adjusted return than PFE, as indicated by its higher Sharpe ratio across all periods. This suggests that XLV has been more efficient at generating returns relative to its risk.
    • PFE's lower beta suggests that it is less sensitive to market movements than XLV. This indicates that PFE is less volatile than XLV and less affected by overall market fluctuations. However, PFE's recent increase in beta suggests that it is becoming more sensitive to market movements.
  • Overall Assessment:
    • PFE has underperformed XLV in terms of both absolute and risk-adjusted returns. While PFE's lower beta suggests a lower risk profile, its higher volatility and larger drawdowns indicate that it is still a riskier investment than XLV.
    • PFE's recent trends suggest that its performance is becoming more volatile and its risk profile is increasing. This could be due to a number of factors, such as changes in the company's business strategy, competition in the pharmaceutical industry, or broader economic conditions.
    • Investors considering PFE should carefully weigh its potential for growth and profitability against its higher risk profile. They should also monitor the company's recent trends to assess whether its performance is improving or deteriorating.
Peers Price History(as of 2024-09-04)
Sanofi (SAN)Bristol Myers Squibb Co. (BMY)
  • Performance Comparison:
    • PFE has generally underperformed its peer companies, BMY and SAN, over the analyzed periods. This underperformance is particularly evident in the longer-term periods, such as the 2-year and 3-year returns.
    • PFE's performance has been inconsistent relative to its peers, with periods of outperformance and underperformance. However, the overall trend suggests that PFE has struggled to keep pace with its peers.
  • Risk and Return Analysis:
    • PFE has provided lower annualized returns than SAN over the analyzed periods. However, PFE's returns have been slightly better than BMY's.
    • PFE has exhibited higher annualized volatility than BMY and SAN, indicating a higher level of risk. This is further supported by PFE's larger maximum drawdown compared to its peers.
    • PFE's maximum drawdown of 54.82% on 04/25/2024 is significantly larger than BMY's 47.42% on 05/29/2024 and SAN's 32.84% on 09/27/2022. This suggests that PFE is more susceptible to market downturns and has a higher risk profile.
  • Risk-Adjusted Performance:
    • PFE's Sharpe ratio has generally been lower than SAN's, indicating that SAN has offered a better risk-adjusted return. PFE's Sharpe ratio has also been lower than BMY's, suggesting that PFE's returns have not been as strong relative to its risk.
    • PFE's beta value has consistently been below 1, indicating that it is less volatile than the overall market. However, PFE's beta value has been slightly higher than BMY's and SAN's, suggesting that PFE is slightly more sensitive to market movements.
  • Overall Assessment:
    • PFE has underperformed its peers, BMY and SAN, in terms of both absolute and risk-adjusted returns. PFE has also exhibited higher volatility and a larger maximum drawdown, suggesting a higher risk profile.
    • While PFE's beta value suggests a lower risk profile than the overall market, it is slightly higher than its peers, indicating a slightly higher sensitivity to market movements.
    • Overall, the analysis suggests that PFE has been a relatively risky investment with lower returns compared to its peers. Investors should carefully consider these factors before making any investment decisions.
Peers Fundamentals(as of 2024-06-30)
Sanofi (SAN)Bristol Myers Squibb Co. (BMY)

  1. Market Position and Size:

    • PFE is the largest company in the peer group, with a market cap significantly larger than its peers, Bristol Myers Squibb Co. (BMY) and Sanofi (SAN).
    • PFE's market cap of 160878.0 is 59589.0 greater than BMY's market cap of 101289.0 and 28582.0 greater than SAN's market cap of 132296.0.
    • This size advantage is reflected in PFE's revenue and EBITDA, but not in its net income.

  2. Profitability and Efficiency:

    • PFE's profitability metrics are mixed compared to its peers and industry averages.
    • While PFE has a higher Gross Profit Margin and EBITDA Margin than SAN, it has a significantly lower Net Profit Margin than both BMY and SAN.
    • PFE's efficiency in generating returns is also mixed.
    • While PFE has a higher Return on Average Assets and Return on Average Total Equity than BMY, it has a lower Return on Average Total Capital and Return On Average Invested Capital than BMY.

  3. Financial Health and Stability:

    • PFE's liquidity and debt position are relatively strong considering its market cap and peer group.
    • Despite having a higher Debt / EBITDA than BMY, PFE's Total Debt to Total Equity Ratio is significantly lower than BMY.
    • This suggests that PFE has a more conservative debt structure compared to BMY, which could provide it with greater financial flexibility.

  4. Valuation and Market Perception:

    • PFE's valuation is relatively high considering its market cap, peer group, and industry standards.
    • Despite having a lower Net Profit Margin and lower returns on assets and equity than BMY, PFE's valuation metrics are higher than BMY.
    • This suggests that the market may be placing a premium on PFE's size, revenue, and EBITDA, despite its lower profitability and efficiency.

  5. Cash Flow and Capital Management:

    • PFE's cash flow generation strength is relatively weak compared to its size, peers, and industry norms.
    • Despite having a larger market cap than BMY, PFE's Net Operating Cash Flow, Total Capital Expenditure, and Free Cash Flow are all lower than BMY.
    • This suggests that PFE may be less efficient in generating cash flow from its operations compared to BMY.

  6. Growth and Future Prospects:

    • PFE's growth trends suggest that it is lagging behind its peers in key areas such as sales, EBITDA, free cash flow, and profitability.
    • PFE's growth in total assets and book value per share is also slowing down.
    • This suggests that PFE may be facing challenges in maintaining its market share and competitive position.

  7. Potential for Investment:

    • PFE's investment attractiveness is mixed.
    • While PFE has a strong market position and generates significant revenue, it faces challenges in profitability, cash flow generation, and growth.
    • PFE's conservative debt structure provides it with financial flexibility, but its lower profitability and lagging growth may pose risks to its long-term financial stability.
    • Investors should carefully consider PFE's challenges in profitability, cash flow generation, and growth before making an investment decision.

  8. Key Risks and Considerations:

    • PFE's low profitability and lagging growth may pose risks to its long-term financial stability.
    • PFE's weak cash flow generation may limit its ability to invest in future growth opportunities.
    • PFE's challenges in controlling operating expenses may continue to impact its profitability.

  9. Overall Assessment:

    • PFE is a large and established pharmaceutical company with a strong market position and significant revenue generation.
    • However, PFE faces challenges in profitability, cash flow generation, and growth, which may pose risks to its long-term financial stability.
    • Investors should carefully consider these challenges before making an investment decision.