Should You Buy Pfizer Stock Below $30?

Pfizer (NYSE: PFE) has faced several issues in recent years that have weighed on its share price. First, the company's coronavirus business isn't nearly as strong as it once was. Second, Pfizer is racing toward important patent cliffs, including that of Eliquis, an anticoagulant. Third, the pharmaceutical giant has faced clinical setbacks with otherwise promising pipeline candidates, including some it acquired. This problem has led to billions in impairment charges. Because of these headwinds (and others), Pfizer's shares have lagged broader equities over the past two years and have hovered below $30 apiece. Is it finally time to invest in the company? Let's see whether there is a rebound on the horizon.

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Second-quarter results were better than expected

Let's start with Pfizer's recent second-quarter update. The company's revenue increased by 1% year over year to $15 billion. While that top-line growth doesn't look impressive, it beat analyst estimates. On the bottom line, Pfizer's adjusted earnings per share were $0.77, slightly lower than the $0.78 reported in the prior-year quarter. Here too, Pfizer beat expectations. And it's important to highlight what drove the revenue and earnings beat.

The company noted that non-COVID revenue increased 5% year over year, while sales from launched and acquired products jumped 18%. This is great news for Pfizer. It suggests that newer (and acquired) products will help pull sales in the right direction over the medium term, while older medicines, especially within its coronavirus business, continue to lose steam.

Newer launches are still needed

Even with the progress Pfizer is making with relatively new launches, upcoming patent cliffs will be a major problem for the company. Consider, for instance, that Eliquis was the drugmaker's best-selling therapy during the second quarter. Pfizer's revenue from Eliquis came in at $2.4 billion, up 21% year over year. So, it arguably remains its single most important growth driver. Pfizer will have to launch more new drugs to fill the gap Eliquis will leave behind as it faces generic competition by the end of the decade. Can the company pull it off? My view is that it can.

Pfizer has a deep pipeline and is currently running dozens of clinical trials. True, many of these are for existing products seeking label expansions. But it is also developing plenty of new clinical compounds. Of the 95 active programs in Pfizer's pipeline, more than half -- 56 to be exact -- are for new molecular entities. And 16 of those are phase 3 studies. These are 16 distinct new molecular entities. Assuming a 25% success rate for them (a conservative assumption) would yield four brand-new products for Pfizer within the next few years, even ignoring other new candidates in phase 2 studies.

Numbers alone won't do it, though. Pfizer needs genuine blockbuster products. Thankfully, several of those it is developing appear capable of achieving that status. Oncology candidates such as PF'4404, which is being developed across several indications, could eventually generate well over $1 billion in annual sales.

Pfizer is also developing a promising GLP-1 weight-loss candidate, berobenatide, that could generate $5 billion in peak sales, according to some analysts, as it rides the wave of the rapidly evolving anti-obesity market. Of course, there are other brand-new candidates in the company's pipeline. And while not a single one of them will generate enough sales by the end of the decade to completely replace Eliquis, Pfizer could see its shares rise substantially by then as it makes significant clinical progress.

The dividend should be safe

Given the headwinds Pfizer has faced, some have wondered whether it can maintain its dividend program intact. The company's forward yield is 6.2%, but its financial problems may lead to dividend cuts, or so the argument goes. However, Pfizer has continued to raise its dividends in recent years, which suggests a strong focus on returning capital to shareholders.

And considering the company's ongoing plan to rejuvenate its approved portfolio and supercharge revenue and earnings growth, investors shouldn't worry too much about its dividend program. Pfizer probably isn't a great pick for growth-oriented investors. It hasn't escaped its problems yet, and sales growth in the next few quarters will be unimpressive. However, the company is on the path to recovery, and long-term income seekers can safely buy its shares.

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.