Should You Follow Activist Investors Into This High-Yield Dividend Stock?

Barchart · 10/15 09:26

Valued at $164.7 billion, Pfizer Inc. (PFE) is a global biopharmaceutical company involved in the discovery, development, manufacturing, and marketing of drugs. The company’s main areas of focus include rare diseases, vaccines, oncology, infectious diseases, internal medicine, and inflammation & immunology. With headquarters in New York, Pfizer is a member of the benchmark S&P 500 Index ($SPX), and has 36 manufacturing sites worldwide.

Why is Pfizer Stock Struggling?

After finding massive success during the COVID-19 pandemic with its vaccine, Comirnaty, and antiviral Paxlovid treatment, Pfizer's revenues have fallen sharply. PFE reported revenue of $41.6 billion in 2020, which ballooned to $81.2 billion in 2021, and peaked at $100.3 billion in 2022. In 2023, though, revenue collapsed to $58.49 billion on free-falling demand for Pfizer's COVID-19 treatments.

The biopharma giant's post-pandemic struggles are clearly reflected in its share price. PFE is down 9.5% over the past 52 weeks, having missed out on the broader market's rally. On a year-to-date basis, PFE is just marginally higher.

PFE looks cheap at its current valuation, priced at 10.94x forward adjusted earnings and 2.70 times sales. That's a discount not only to the broader healthcare sector median, but it's also a bargain compared to Pfizer's own historical valuation metrics. In other words, now could be a good time to scoop up Pfizer stock for value-minded investors.

The pharma giant is yielding over 5.7% amid its price underperformance, too. Pfizer pays a quarterly dividend of $0.42 per share, backed by over a decade of consistent increases.

Pfizer Beats on Q2 Revenue

In its second-quarter results, Pfizer reported its first year-over-year quarterly revenue increase since late 2022, when sales of its COVID-19 offerings peaked. Total revenue of $13.28 billion was up 2% from the year-ago period, beating Wall Street’s $13.13 billion estimate. Adjusted earnings totaled $0.60 per share, again outpacing analysts' $0.45 per share estimate.

Excluding Comirnaty and Paxlovid, revenues were up 14% year over year to $12.8 billion. Management noted strength in legacy Seagen products, which generated global revenues of $845 million, as well as a 71% operational increase in global sales of the Vyndaqel family of products, which addresses a rare cardiovascular disease.

For FY2024, Pfizer upwardly revised its revenue guidance to a range between $59.5 billion to $62.5 billion, indicating expected annual top-line growth of about $1.0 billion at the low end.

On the conference call, management also said they remain on track to deliver “at least $4 billion of net savings from our cost realignment program by the end of this year.”

Management Shakedown Incoming?

However, the post-COVID turnaround under CEO Albert Bourla isn't happening fast enough for some. Pfizer jumped into the headlines recently after activist investor Starboard Value acquired a $1 billion stake in the company, with the Jeff Smith-led fund reportedly getting an assist from former Pfizer CEO Ian Read and former CFO Frank D’Amelio.

Since then, the former Pfizer execs have switched teams and are now backing Bourla, though Starboard claims Read and D'Amelio were threatened by Pfizer or its proxies. While this increasingly contentious investment from Starboard could be an ongoing distraction for Pfizer and its shareholders, it's unclear whether the activists will ultimately gain control - particularly with revenues back on the upswing.

What Do Analysts Say About Pfizer Stock?

Analysts have a consensus “Moderate Buy” rating on PFE, with 9 “Strong Buys” and 12 “Holds” among the 21 pros tracking the shares. The mean price target for PFE is $33.10, reflecting an expected upside potential of 12.3% from the current price.

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On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.