Pfizer Recently Offered Assurances to Shareholders, but Is the Stock Worth Purchasing?
Amidst the autumn air filled with discontented shareholders aiming to oust the upper management and alter the company's trajectory via an activist takeover, Pfizer (PFE 0.23%) assures that everything is under control. With its revised projections for fiscal years 2024 and 2025, announced on December 17, the company's primary message is that it will maintain a firm grasp on its expenses while increasing its arsenal of medications as usual.
But is this sufficient reason to invest, or should investors approach with caution? Let's delve deeper to form a conclusion.
This new forecast, a mixed bag of surprises
To start, let's scrutinize the outlook provided by the management for 2025 against its present performance to gauge the significance of the upcoming 12 months for shareholders.
Pfizer's trailing-12-month (TTM) revenue amounts to $59.3 billion, while its TTM normalized diluted earnings per share (EPS) is $1.55. In accordance with the forecast for the following year, the company anticipates generating revenue of up to $64 billion, and adjusted diluted EPS ranging between $2.80 and $3.00.
However, shareholders might find this approach concerning. In line with the reaffirmed forecast for 2024, the business predicts earning revenues of up to $64 billion and up to $2.95 in adjusted diluted EPS. Do you observe the quandary? Even if exceptions make sales and earnings hit the top end of management’s guidance, there will be little growth in either revenue or earnings between 2024 and 2025.
This means that the plan to slash costs by $500 million in 2025 will make hardly any impact. Luckily, a separate cost-saving initiative focused on manufacturing is predicted to yield results in the second half of 2025, which should lend a hand in 2026 from an earnings standpoint.
Furthermore, the overlapping forecast for 2024 and 2025 appear as an illusion; after accounting for non-recurring items from this year's forecast performance, Pfizer believes that its revenue could expand by up to 5% and its adjusted diluted EPS by up to 18% in 2025. Although this does not inspire much confidence, management acknowledges that underperforming at the lower end of its estimates would result in a revenue decline and a mere 10% EPS growth from the previous year.
A more promising future lies ahead, albeit not right now
What should investors glean from these disclosures from the management?
Firstly, there's little indication that the company intends to expedite its growth in the near future, which implies no significant changes in strategy.
The objectives of enhancing efficiency, emerging as a leading provider of oncology drugs, and consistently returning capital to shareholders while reducing the company's debt burden are still being pursued. Similarly, research and development activities will continue to be fully financed, and despite not being explicitly mentioned, there is a strong probability that Pfizer will continue to investigate opportunities to acquire promising biotechs or their pharmaceutical assets to bolster its pipeline.
Moreover, investors must prepare for another year of the stock languishing in the doldrums. There's no impelling catalyst that could trigger rapid upward price movement.
However, if you're interested in a promising dividend with an appetizing forward yield of 6.7%, the present moment seems like an opportune time to invest additional shares or make your initial investment – except for the fact that Pfizer is paying out considerably more than it's earning; its payout ratio is a steep 223%. The danger of the dividend being suspended is not high at the moment, but if poor growth persists for a couple of more years, it could be brought up for discussion, particularly if some late-stage programs suffer setbacks in the pipeline.
With this information in hand, this stock is worth pursuing, provided that you're willing to endure the slow period ahead. Just be mindful that the risk is greater here than in a typical pharma stock, as this colossus appears to be progressing at a sluggish pace compared to shareholder preferences.
Despite Pfizer's reassurances of financial stability and continued medication development, investors may want to exercise caution due to the lack of significant revenue and earnings growth between 2024 and 2025, as outlined in the company's forecasts. In light of this, some investors might find the high dividend yield of 6.7% appealing, but the high payout ratio of 223% suggests a potential risk of dividend suspension if growth continues to be slow.
Given Pfizer's strategy to enhance efficiency, become a leading provider of oncology drugs, and return capital to shareholders while reducing debt, investors may need to be patient and prepared for a potential slow period in the stock's performance. However, the company's commitment to research and development and potential acquisitions to bolster its pipeline offers promising prospects for the future.
