High-Yield Pfizer Falls Off The COVID Cliff, And Survives

Key Points

• Pfizer's Q1 results top expectations on strength in COVID sales. 
• Ex-COVID sales grew by 5% and are expected to accelerate in the 2nd half. 
• The stock yields more than 4% and offers value compared to its peers. 

Pfizer NYSE: PFE was expected to post a significant decline in revenue and earnings because of the slowing COVID business, and it did. However, the takeaway from the report is that business is better than expected, the company is growing at the core level, and the pipeline of new products is robust. That’s important because of the looming patent cliff, which is set to impact results in 2025.

Regarding Pfizer’s pipeline, the company has a record number of new products on track for release this year and early in 2024, with even more in the works; among the most promising new treatments is Xandi, which has been shown to reduce the risk of death in certain prostate cancer patients by more than 50%. 

This means the 4.2% yielding dividend is as reliable as ever, and the stock presents a value among peers. Shares of Pfizer trade at only 11.5X earnings compared to 14X for AbbVie NYSE: ABBV, 16X for Merck & Co. NYSE: MRK and an even higher 49X for AstraZeneca NYSE: AZN and none of them have a comparable yield. AbbVie is the closest at 3.85%, but it is facing 1 of the toughest patent cliffs on the docket.

AbbVie’s Humira was worth more than 36% of revenue in Q4 2022 and is losing patent protections this year. Regarding Pfizer’s dividend health, the company is paying less than 25% of the 2023 consensus estimate and is already outperforming the Marketbeat.com figures. 

Pfizer Has Healthy Quarter, Shares Respond Favorably 

Pfizer did not have a great quarter, with revenue falling 28.8% YOY to $18.3 billion, but it did have a much better-than-expected quarter and reaffirmed the guidance. The company’s revenue beat the consensus by $1.81 billion or 1100 basis points on unexpected strength in COVID sales and growth in the core business. 

Revenue from Comirnaty and Paxlovid, the critical COVID treatments, came in at $7.1 billion or 38% of revenue, while the core business grew by 5%. On a segment basis, using the company’s new reporting structure, the Biopharma business contracted by 26% on a 37% decline in Pharma offset by 8% growth in Specialty products and a 1% decline in Oncology treatments. 

The company experienced margin pressure and earnings declines, offset by share repurchases made in Q1 last year. On the bottom line, the GAAP earnings fell by 25%, and the adjusted by 24%, but both outpaced the near 29% decline in revenue and beat the consensus figures by a wide margin. The adjusted earnings beat consensus by more than 2500 basis points, and this strength may be expected in the current quarter. 

Guidance was reaffirmed in a range that brackets the consensus for revenue and earnings. This positive for the market may lead to additional catalysts later in the year, assuming the company’s momentum persists into the current and following quarters. 

The Analysts Could Spark Reversal For Pfizer Shares 

The analysts haven’t come out with revisions to their outlook yet, and the trend ahead of the report was negative, but there is a bullish catalyst in the details. Despite lowering their price targets and ratings in Q1, the analysts view the stock as a Hold with about 25% upside potential.

Even the low price target is above the current price target, and many of the most recent is above that, putting the stock above a critical resistance point. That point is near $42; a sustainable rally may form if the market can get above there, and upward revisions from the analysts would help get it there.