Pfizer Beats Expectations in Q3 and Raises Its Guidance. Is the Stock Due for a Big Rally?

On Tuesday, healthcare giant Pfizer (NYSE:PFE) reported its third-quarter results, which came in far better than expected. Management has also raised its guidance for the year in light of its stellar performance.

Pfizer's stock has been rallying this year, but it's still down more than 30% in five years, as investors remain cautious now that the business isn't generating huge amounts of revenue from its COVID vaccine and pill.

But with the healthcare stock at a low valuation and earnings being incredibly impressive, it could be set to soar even higher.

Image source: Getty Images.

The company delivered terrific quarterly results

Pfizer has been focusing on reducing costs, particularly as the company generates less revenue than it did in the past, when COVID product sales were through the roof. It forecasts savings of approximately $9.7 billion through to 2029.

During the most recent quarter, the company reported $16.6 billion in revenue, which was far higher than analyst expectations of $15.9 billion. Its adjusted per-share profit of 87 cents was also comfortably higher than Wall Street estimates of 73 cents.

In addition, Pfizer raised its full-year guidance, projecting adjusted per-share profit in the range of $2.95 to $3.05, up from a prior forecast of $2.80 to $3.

While investors have been concerned about declining sales and patent cliffs, Pfizer has given the market reason to be more optimistic about its future, with revenue from launched and acquired products soaring 32% this past quarter. Meanwhile, it still has a promising pipeline with many drug candidates in development that could further bolster its sales in the future.

Pfizer's stock is undervalued and offers a high dividend

For multiple years now, Pfizer's stock has been wallowing amid a low valuation. Investors haven't trusted the stock, but now, with a strong Q3, this may be the turning point for the business, as it highlights its growth portfolio and the value that it offers.

Although the stock is up more than 20% this year, its valuation remains modest, as it's trading at a forward price-to-earnings multiple of 10, which is based on analyst projections. It's a steal of a deal, especially when factoring in its dividend, which yields 5.6%, making it one of the better dividend stocks to own on the market right now.

Investors get a lot of value with Pfizer's stock, and a much larger rally is overdue; it's just a matter of when it takes place. It's a stock that investors may want to consider buying sooner rather than later.

David Jagielski, CPA 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.