Pfizer has been treading water for the past six months, recording a small return of 2.6% while holding steady at $27.76. The stock also fell short of the S&P 500’s 12.7% gain during that period.
Is now the time to buy PFE? Or does the price properly account for its business quality and fundamentals? Find out in our full research report, it’s free.
Why Does Pfizer Spark Debate?
With roots dating back to 1849 when two German immigrants opened a fine chemicals business in Brooklyn, Pfizer (NYSE: PFE) is a global biopharmaceutical company that discovers, develops, manufactures, and sells medicines and vaccines for a wide range of diseases and conditions.
Two Positive Attributes:
1. Economies of Scale Give It Negotiating Leverage with Suppliers
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $63.7 billion in revenue over the past 12 months, Pfizer is one of the most scaled enterprises in healthcare. This is particularly important because branded pharmaceuticals companies are volume-driven businesses due to their low margins.
2. Adjusted Operating Margin Rising, Profits Up
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Analyzing the trend in its profitability, Pfizer’s adjusted operating margin rose by 18.5 percentage points over the last two years, as its sales growth gave it operating leverage. Its adjusted operating margin for the trailing 12 months was 33.9%.
One Reason to Be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Pfizer’s sales grew at a tepid 2.1% compounded annual growth rate over the last five years. This wasn’t a great result, but there are still things to like about Pfizer.
Final Judgment
Pfizer’s positive characteristics outweigh the negatives. With its shares underperforming the market lately, the stock trades at 10.2× forward P/E (or $27.76 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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