At under $40, is the Pfizer share price too cheap?

The Pfizer share price has risen 18% since it released its coronavirus vaccine. After its recent positive trading update, is the stock still too cheap?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Syringe and vial on blue background

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Since it announced that it had developed a Covid vaccine, the Pfizer (NYSE: PFE) share price has risen 18%. And it’s up almost 24% in the past year. Nonetheless, with a recent trading update that was excellent, in the views of many, Pfizer shares are now too cheap. But are they really? Yes, the company has managed to grow both profits and revenues. But these positives need to be balanced against some of the risks, especially as the company is facing multiple patent expirations in the middle of the current decade.

Recent trading update

In the first-quarter trading update, the positive impact of the vaccine could be seen. In fact, Q1 revenues were $14.6bn, 45% higher than the previous year. Profits were 48% higher at over $5bn.

These are clearly very strong results and demonstrate why Pfizer shares have managed to rise recently. The company also announced a quarterly dividend of 39 cents per share. This equates to an annual yield of roughly 4%. In comparison to the majority of pharma companies, this is high and I feel it offers a compelling reason for me to invest.

The recently strong financial results have equally demonstrated the positive impact of the coronavirus vaccine on the company. Indeed, Pfizer expects to generate $26bn in revenues from the vaccine alone. These revenues seem fairly safe. This is because it has signed a number of long-term contracts with governments around the world, many of which extend until 2024. The problem here is whether Pfizer can maintain its revenue growth after the need for coronavirus vaccinations has diminished.

What does the future hold?

Fortunately, Pfizer is not entirely reliant on the vaccine, and its core business has continued to perform strongly. Indeed, excluding the effect of the vaccine sales, revenue growth was still 8%.

Furthermore, the company has invested large amounts of cash into research and development, which will hopefully come to fruition in the future. In fact, as of March, Pfizer’s pipeline included 99 potential new therapies. Although not all of these will work out, it is still very promising. A new, successful drug would likely have a positive effect on the Pfizer share price.

Even so, there are risks that need to be pointed out. For example, many of Pfizer’s most successful drugs are coming up to patent expiration. These include the immunology drug Xeljanz in 2025 and Prevnar 13 in 2026. This means that generic competition will be able to enter the market. As such, it is vital that the company can continue to expand its pipeline in case sales of these drugs are negatively affected.

Is the Pfizer share price a bargain not to be missed?

This year the firm expects earnings per share of around $3.60. This gives Pfizer shares a price-to-earnings ratio of around 11, which does indicate a cheap valuation. After the success of the vaccine, it is also hoped that the company can build on this and remain a leader in innovation. Hopefully, this would be met with even larger profits in the future. So, I do believe the Pfizer share price is too cheap and has some upside potential. As such, I’m very tempted to add Pfizer shares to my portfolio. 

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Publish Test

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut…

Read more »

Investing Articles

JP P-Press Update Test

Read more »

Investing Articles

JP Test as Author

Test content.

Read more »

Investing Articles

KM Test Post 2

Read more »

Investing Articles

JP Test PP Status

Test content. Test headline

Read more »

Investing Articles

KM Test Post

This is my content.

Read more »

Investing Articles

JP Tag Test

Read more »

Investing Articles

Testing testing one two three

Sample paragraph here, testing, test duplicate

Read more »