Pfizer Stock: Buy, Sell, or Hold?

Pfizer's (NYSE: PFE) shares have been hovering below $30 for more than two years now. After the company reported some of its best-ever financial performances thanks to its work in the coronavirus market, revenue and earnings plummeted as the drugmaker was unable to sustain that momentum. However, Pfizer has recently strengthened its pipeline, and over the next few years, the company could see substantial clinical and regulatory progress. How could Pfizer perform over the medium term? Let's find out whether the stock is a buy, sell, or hold.

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Financial results might get worse before they improve

Though Pfizer is no longer generating the kinds of sales and earnings it did earlier this decade, the company has performed better than expected in recent quarters. As management notes, over the past 10 quarterly reporting periods, Pfizer has beaten revenue estimates in nine of them and earnings per share estimates in all 10. But things could get worse for Pfizer over the next few years as the company deals with major patent cliffs. The pharmaceutical giant will lose patent exclusivity for Eliquis, an anticoagulant and one of its biggest growth drivers, by the end of the decade.

Ibrance, a cancer drug, should also lose patent protection relatively soon. Note that in the second quarter, Pfizer's revenue increased just 3% year over year to $15 billion. Sales of Eliquis came in at $2.4 billion, up 21% compared to the year-ago period. And revenue from Ibrance was $1.1 billion, up 1% year over year. So, combined, these two products accounted for about 23% of Pfizer's revenue -- a significant amount.

Pfizer's deep pipeline could help it rebound

Pfizer has a portfolio of new and acquired products that will help it get through major patent cliffs. As the company has pointed out, this group of products generates $13 billion in annualized sales and is growing 20% year over year. If that continues, by the end of the decade, they could help offset the losses the company will incur from patent cliffs. Pfizer is also working on launching other brand-new products. This is perhaps where its best opportunities lie. The company is currently running 31 Phase 3 studies. What's even more exciting is that roughly half of these ongoing clinical trials are for new molecular entities.

And these investigational medicines span several therapeutic areas, including oncology, weight management, and immunology. The success rate for Phase 3 clinical trials is estimated at 50% to 60%. So, if Pfizer's success rate in this stage is around the industry average over the next few years, the company should see several of its products eventually earn approval and start contributing to its financial results.

Of course, some of them look more promising than others. For instance, Pfizer's investigational cancer drug, PF'4404, is undergoing late-stage clinical studies across some forms of colorectal cancer and lung cancer, which are the top two leading causes of cancer death worldwide. Pfizer will likely test the medicine in other areas as well and has argued that PF'4404 could essentially become a pipeline-in-a-drug, earning approval across a wide variety of indications.

If all goes well, this could become a blockbuster product. Pfizer's investigational GLP-1 weight loss therapy, berobenatide, looks promising too. It could be administered monthly, versus the weekly administration of the current leading weight loss drugs. Pfizer could successfully tap into the fast-growing weight loss market with this medicine. Several other candidates are also worth keeping an eye on.

Is the dividend safe?

Another good reason to consider Pfizer stock is its dividend, but given upcoming patent cliffs, some investors may worry that the drugmaker's juicy 6.2% yield isn't safe. My view is that Pfizer is on the right track to turn things around, and given that it has continued to increase its payouts despite worsening financial results, the dividend is safe. Now, Pfizer stock isn't for everyone.

Growth-oriented investors will want to look elsewhere. But for income-seekers focused on the long game, the company looks attractive at current levels, especially given that it trades at just 9.7x forward earnings, compared with an average of 18.3x for healthcare stocks. So, for patient dividend investors looking for bargains, the stock is a buy.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.