Pfizer Just Hit a 52-Week High. Is the Turnaround Finally Real?

So far this year, Pfizer's (NYSE: PFE) shares have made noticeable progress in emerging from their post-pandemic slump. Year to date, the stock is up 20%, and this is all while the company has remained one of the high-yield dividend stocks, with around a 5.8% forward dividend yield.

While the comeback is underway (shares recently hitting a new 52-week high), it remains in its early stages. Pfizer is succeeding in efforts like cost-cutting; the next step is to secure final approval for a new batch of branded pharmaceutical products to counter the looming loss of patent exclusivity on several of its flagship blockbuster drugs.

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Pfizer has made some changes

When Pfizer last reported quarterly earnings back in August, the company noted several promising takeaways. Although revenue rose only 3%, earnings came in at a slight GAAP loss, and adjusted income growth was essentially unchanged from the prior year's quarter, the results exceeded Wall Street's expectations.

Sales of drugs like blood thinner Eliquis, as well as cancer treatments like Padcev and Lorbrena, helped to counter a further drop in sales of Pfizer's COVID-19 vaccine and treatment products. Moreover, the company proudly unveiled that, due to the strength of these sales, it was raising full-year guidance from $59.5 billion to $62.5 billion to $60.5 billion to $62.5 billion, all while reiterating its full-year adjusted earnings forecast of between $2.80 and $3 per share, in line with analyst expectations.

Alongside better-than-expected results, Pfizer's management touted the success of its cost-reduction program, first implemented in 2023, and announced plans to further expand it, with the potential for up to $6.7 billion in cost savings through 2029.

The path to new multiyear highs

Pfizer trades at a low valuation, around 10 times estimated 2026 earnings. That said, sell-side forecasts still call for 2027 to be a transitional year for Pfizer, with earnings per share (EPS) declining slightly from $2.96 to $2.88. Pfizer's patent for Eliquis and other top drugs, like cancer treatment Ibrance, will soon expire.

That said, even as management has previously stated it won't be until 2029 that Pfizer fully exits its slump, that doesn't mean shares will remain in a slump from here. If Pfizer keeps cutting costs, beating expectations with sales, and makes progress with its pipeline, including with its slew of anti-obesity drug candidates acquired through last year's Metsera acquisition, there may be a path for shares to keep climbing.

Once the patent cliff enters the rearview mirror, investors could re-rate Pfizer to a valuation in line with pharmaceutical stocks not facing such challenges, in the mid-to-high teens.

Make no mistake: Uncertainty remains. A string of clinical trial disappointments for Pfizer's top candidates could easily shift sentiment back to bearish. Nevertheless, Pfizer appears well-equipped to maintain its 5.8% dividend.

With its current payout ratio around 60%, a sustainable level, and given the prospect of cost reduction efforts helping to stabilize earnings, there may be sufficient coverage to ride out even an extended downturn, enabling you to get paid a nearly 6% yield. At the same time, you wait for the stock to lift off once again.

Thomas Niel 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.