The past three years have been difficult for Pfizer (PFE -0.35%). The pharmaceutical giant's financial results worsened substantially as its coronavirus-related tailwind came to a screeching halt. Investors responded by sending the stock down significantly. Pfizer has lost about 50% of its market value in the past three years. If the stock can bounce back and deliver excellent returns over the long run, initiating a position today might be a great idea. Are there good reasons to think Pfizer has what it takes to recover? Let's find out.
Pfizer's top line moved in the wrong direction for several quarters. That's not surprising. The company generated mouthwatering sales from Paxlovid, its COVID-19 treatment, and especially Comirnaty, its vaccine for the disease, in 2021 and 2022. Once the worst of the pandemic started receding, combined revenue from both products fell off a cliff. However, the drugmaker has improved significantly over the past year. In 2024, Pfizer's total revenue increased by a respectable 7% year over year to $63.6 billion. The company's adjusted earnings per share jumped by 69% year over year to $3.11.
Despite Pfizer managing to stop the bleeding on the top and bottom lines, its stock still isn't performing well. Why? First, some of the company's revenue last year was due to acquisitions, so it wasn't all organic growth. Second, Pfizer will face significant patent cliffs by the end of the decade. Anticoagulant Eliquis, the rights of which Pfizer shares with Bristol Myers Squibb, remains one of the company's biggest growth drivers, but it will run out of patent exclusivity by 2029.
Though that is still some years away, developing therapies to replace those running out of protection takes time. Investors apparently don't think any of Pfizer's newer products or pipeline candidates can replace the more than $7 billion in annual sales Eliquis generates. Since the market is forward-looking, Pfizer's stock continues to struggle in anticipation of that headwind.
Looking at things in context, Pfizer still looks like a strong long-term bet. Here are three reasons why. First, the company's success in the COVID-19 market strengthened its business. Pfizer would be facing the Eliquis (and other) patent cliff problem even if it were not for its coronavirus-related success. However, the company's decision to enter that market and its leadership in that space allowed it to become the first biopharma company to generate $100 billion in annual sales.
It helped fund mergers and acquisitions and replenish its lineup and pipeline. That brings us to our second point: Pfizer's incredibly deep pipeline. Maybe it does not have a single product in its portfolio that will generate over $7 billion in annual sales, but the company is making a push in key markets that should yield tangible results. Pfizer aims to become a leader in the oncology market following its blockbuster acquisition of cancer specialist Seagen.
This smaller, cancer-focused drugmaker was already developing an impressive number of products for its size. With the backing of the much larger Pfizer, that innovative wheel should spin even faster. As Pfizer's CEO Albert Bourla said about the acquisition of Seagen, "We are not buying the golden eggs. We are acquiring the goose that is laying the golden eggs."
Finally, Pfizer is a solid dividend stock. The company's forward yield is about 6.5%, and despite its issues in the past few years, it has continued to increase its dividend. Pfizer's cash payout ratio of 193% looks unsustainable. It's a result of its recent acquisition-related spending sprees. But the company should be fine. It delivered its predicted net cost savings of $4 billion last year and plans for another $4.5 billion this year. Pfizer's management is dedicated to dividend growth. Investors have nothing to worry about on this front.
It might take a while for Pfizer to fully recover as it develops and commercializes new products in various areas, but in the meantime, the company will maintain its dividend program. Investors with a long time horizon should still consider the pharmaceutical giant.
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