Is Pfizer Stock an Underrated Healthcare Investment Play?

Pharmaceutical giant Pfizer (NYSE: PFE) recently had to drop its internally developed GLP-1 weight loss drug candidate. The unfortunate outcome is that the company has had to watch rivals Novo Nordisk and Eli Lilly build early leads in this fast-growing drug niche.

With Pfizer facing patent expirations ahead -- and now this GLP-1 setback -- Wall Street remains downbeat on the stock. But that's a potential opportunity for long-term investors.

Pfizer is a high-yield opportunity

Pfizer's dividend yield is a lofty 6.2%. That's well above the 1.1% yield offered by the S&P 500 index and the 1.7% yield of the average pharmaceutical stock. And the company recently provided longer-term financial guidance that included a commitment to maintaining the dividend.

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To be fair, the payout ratio is currently over 100%, so there is some risk. But management and the board of directors appear to believe they can sustain the dividend while the company works to improve business performance. Luckily, dividends are paid out of cash flow, not earnings, so a payout ratio of 100% or higher can be sustained over short periods.

Pfizer is acting quickly

The key to this story, however, is Pfizer's long and successful history. It is one of the world's largest and most respected pharmaceutical companies. It has navigated difficult periods before in a highly competitive, technologically advanced industry. And while the GLP-1 setback was bad, it was hardly the end of the story. In fact, Pfizer has already gotten back in the game with an acquisition and a distribution partnership.

While Pfizer is still developing the long-acting GLP-1 drug it bought, the company has proven it can pivot quickly when needed. And it is working on other opportunities in the migraine and oncology spaces, so GLP-1 drugs aren't the only story to watch.

Pfizer is a turnaround story

Meanwhile, Pfizer's price-to-sales, price-to-book value, and price-to-forward P/E ratios are all below their five-year averages. That, coupled with the lofty yield, suggests the stock is trading hands at an attractive valuation. Improved business performance could be a few years in the making, but you'll be paid well to wait for better days.

All in all, Pfizer isn't for the faint of heart, as it is really a turnaround story right now. However, investors don't appear to be giving the company enough credit based on its long history of success. If you like owning underrated stocks, this healthcare giant could be a good fit for your dividend portfolio today.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.