Pfizer Stock  (NYSE:PFE)

Pfizer Inc. (NYSE:PFE) investors who increased their holdings at the December highs have suffered a big drop since then. As a result, PFE plummeted about 22% (in price performance terms) from its December high to its lows last week, missing out on the 2023 rally.

Earnings Predictions Have Been Revised Lower

The magnitude of the recent collapse is likely to have harmed a stock that achieved a 10-year total return CAGR of 9.4%. Is it logical? Without a doubt. We warn investors not to expect another record year. However, the company’s COVID business (vaccine and therapy) faced more headwinds in 2023, as its outlook fell short of earlier consensus estimates.

As a result, Pfizer’s forward earnings expectations have been revised lower, leading its valuation multiples to rise from their previous lows.

As it continues to leverage the private commercial market, management believes that 2023 might be the bottom for COVID revenues. However, in order for Pfizer to sustain its market leadership, the initial go-to-market action necessitates an increase in OpEx.

Management anticipates a constant vaccination rate through 2024, with improved gains from its proposed combo vaccine beginning in 2025. Paxlovid, its oral medication, is also projected to be a key growth driver, as Pfizer does not have to share revenue and margins with BioNTech (NASDAQ:BNTX).

Be Aware of Execution Risks

Despite this, we believe investors should be aware of the execution risks as Pfizer enters a new phase in COVID vaccines by tapping the private market. Nonetheless, as it transitions away from its government inventory, Pfizer should profit from an improvement in pricing dynamics (between $110 and $130).

Furthermore, research and development costs are estimated to rise by 8.7% in 2023. As a result, when combined with a projected 31% drop in FY23 sales, investors should expect its adjusted EBIT margins to suffer significantly.

Wall Street analysts predict an adjusted EBIT margin of 30.5% in FY23, down from 37.1% in FY22. Analysts foresee an uptick in profitability in FY24, with the adjusted EBIT margin expected to recover to 35.1%.

Keeping this in mind, investors must assess whether they are confident in the company’s potential to effectively transition to the private commercial market.

Furthermore, management must handle the $17 billion loss of exclusivity (LOE) from 2025 to 2030, which requires Pfizer to accelerate the development of its pipeline.

As a result, we recommend investors to keep a close eye on the company’s progress over the next year, as management stated that it anticipates “up to 19 new medicines or indications in the market over the next 18 months, with 15 from its internal pipeline and 4 via recent business development deals.”

As a result, the crucial question for investors is whether they believe these risks have been priced in, given the huge drop from December highs.

Pfizer stock has retraced from its December levels, which was also an astute bull trap. Late investors who jumped on the upswing in December were snagged by market operators.

Pfixer’s NTM EBITDA multiple of 8.2x, on the other hand, is in line with December highs, as analysts cut their projections for the next twelve months.

Despite this, we feel the current reset in analyst expectations is positive, as evidenced by the recent post-earnings February lows in Pfizer’s medium-term price chart.

We believe astute market participants anticipated management’s disappointing forecast, resulting in the December fall. As a result, by the time analysts lower their forecasts, Pfizer has most likely already bottomed.

Pfizer stock has retraced to its long-term bottom, but it must maintain above its 200-week moving average for our bottoming thesis to hold.

As a result, management has the opportunity to reassure the market that Pfizer’s $25 billion in de-risked future revenue is on pace to entice more long-term purchasers back into the market.

Image: ShutterStock @ nitpicker

Please See Disclaimer