Despite co-developing the first COVID-19 vaccine to be authorized in the US and undergoing transformational breakdown, Pfizerin (NYSE: PFE) the shares ended 2020 almost exactly where the year began.
In announcing the company’s earnings, investors were eager to know how much the COVID-19 vaccine would impact financial performance and whether its new structure with a biopharmaceutical focus would propel the company to the faster growth it had promised. The company did a small Rorschach test, leaving investors with optimism or disappointment, depending on what they want. Here’s what I took from Pfizer’s fourth quarter and year 2020 earnings.
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1 green flag
The midpoint of the 2021 revenue projection, from $ 59.4 billion to $ 61.4 billion, represents a 44% increase over last year. Even without the contribution of the COVID-19 BNT162b2 vaccine, the estimated US $ 44.4 billion to US $ 46.4 billion represents an increase of 8.4% in 2020. This exceeds the negative growth of 3.5% reported for the fiscal year 2019 and the 1.8% growth management reported only for 2020.
The acceleration was exactly what CEO Albert Bourla had in mind when he dismembered Upjohn’s patent-free unit into a new company combined with Mylan called Viatris (NASDAQ: VTRS) and leaving GlaxoSmithKline (NYSE: GSK) controlling a joint venture with the two companies’ consumer health businesses. These two units were an obstacle to growth, with the consumer health business growing just 2% per year between 2015 and 2018, and Upjohn sales dropping 24% since 2017. The CEO now has the science company he wanted, focused on developing drugs that are the first to treat a disease or better than existing treatments.
Of course, the vaccine you developed with your partner BioNTech (NASDAQ: BNTX) will play an important role in Pfizer’s results at least next year. Management reported delivering 65 million doses by January 31, 29 million of which went to the U.S. government. Pfizer also expects to ship 200 million doses by the end of May. Although the vaccine contributed only $ 154 million in revenue during the fourth quarter, its share of the COVID vaccine revenue is expected to be $ 15 billion this year. It may not be the $ 19 billion that some analysts speculated, but shipment projections are good news for everyone who is eager to get back to normal.
1 red flag
The sales growth orientation is impressive, but the momentum provided by the COVID-19 vaccine has a downside. After the gross margin has fluctuated around 80% in recent years, management projects that it will drop to 67% in 2021. Even removing BNT162b2 from the projections, the gross margin is forecast at 78% to 79%, approximately in line with previous years. This is after getting rid of weaker consumer health and unpatented businesses. Perhaps that is why the company did not buy back shares in 2020 or 2021, despite an authorization to spend up to $ 5.3 billion. Whether the stock is a bargain depends a lot on what happens after 2021.
The current market value of $ 194 billion is 4.6 times the sales of 2020. This price / sales (P / S) ratio is close to the top of the 3.8 to 5.0 range for the past seven years. Looking to the future, the shares are traded at 3.2 times the sales inflated with the vaccine in 2021, well below the historical norm. Although sales of the COVID-19 vaccine will not last forever, the market appears to ignore them completely. With competing vaccines coming soon from AstraZeneca (NASDAQ: AZN) and Johnson AND Johnson (NYSE: JNJ), two companies that pledged not to profit from drugs during the pandemic, it seems increasingly likely that BNT162b2 will do much more for humanity than for Pfizer shareholders.
Is Pfizer stock a purchase?
Although the company was able to deliver a vaccine in record time and believes it will ship two billion doses this year, the stock has not been anywhere since before the pandemic. The CEO has fulfilled his promise of more growth through innovation and is exceeding the growth goals he originally set, even without the COVID vaccine.
While competing vaccines are on the horizon, it is becoming clear that virus mutations and booster vaccines could generate continued revenue beyond this year. Furthermore, price competition will not be as fierce when the pandemic is over. Producers who have pledged to forgo profits have only pledged to do so as long as the crisis persists. While it is curious that the company has not invested its money in the repurchase of shares, it may be saving for a major acquisition. Regardless, a return to historical multiples could send stocks significantly higher. This makes the reward much greater than the risk of buying Pfizer shares.