Pfizer (NYSE:PFE)
Pfizer (NYSE:PFE), a pharmaceutical company, reaped huge profits during the pandemic as one of the primary manufacturers of COVID-19 vaccines. Indications suggest, however, that demand for vaccines is beginning to decrease.
Pfizer’s bottom line would take a hit if fewer people needed vaccines, but should it scare off investors? What follows is essential information.
Vaccine demand seems to be fading.
Novavax, another vaccine manufacturer, recently reduced its sales target for 2022 from $4–5 billion to $2–3 billion due to a possible fall in demand for its COVID-19 vaccine. Vaccine manufacturer Biovac, which works with Pfizer (NYSE:PFE) to mass-produce vaccine doses, has issued a dire warning that supply may fall short this year due to sluggish demand.
Pfizer (NYSE:PFE) expects to continue to have a successful 2022. The business has made optimistic forecasts, projecting $32 billion in income from its COVID-19 vaccine, Comirnaty, based on commitments for dosage purchases as of July. As a result, the business anticipates a revenue range of $98 billion to $102 billion for 2022, representing a 21% to 25% year-over-year increase, and EPS in the range of $6.30 to $6.45, representing 55% to 59% growth.
Investors should brace for a substantial pullback but wait to see what the 2023 forecast looks like as the year winds down. Sales of COVID-19 vaccines worldwide are predicted to drop by as much as 43% in 2019 and keep declining in the following years, as reported by Statista.
What effect it may have on Pfizer
See how Pfizer’s sales skyrocketed in 2021 thanks to the potential $32 billion in income from Comirnaty and the $22 billion from Pfizer’s COVID-19 therapy, Paxlovid. The below growth trajectory is radically different if the combined $54 billion in sales is subtracted from the $48 billion in the 2022 estimate. Pfizer’s expansion over the previous two years may be attributed mainly to the success of Comirnaty and Paxlovid.
As a positive side note, it is unlikely that sales of products related to COVID-19 would suddenly drop to zero. There may be a decline in the use of the COVID-19 vaccine during the next few years; nevertheless, new mutations, susceptible populations, and under-vaccinated emerging markets may necessitate the vaccine in the future.
Overall, investors should get used to the idea that Pfizer’s COVID-19 drugs will play less of the company’s growth strategy than they have for the past two years. Both Pfizer’s top line and bottom line could suffer as a result.
What should investors do next?
Although Pfizer (NYSE:PFE) is likely to reverse some of its growth from the epidemic, that is no reason for investors to abandon the company. The sudden influx of COVID-19 cash has profoundly affected the company’s finances. The management has cut long-term debt from more than $60 billion to $40 billion, while cash has increased to an astounding $33 billion. On a net (debt minus cash) basis, the company’s debt went from the billions to virtually zero. Over the next few quarters, vaccine sales will gradually increase that cash balance.
Pfizer (NYSE:PFE) will have sufficient cash flow to finance pipeline expansion, make a strategic acquisition, or buy back shares. If the management desired, it could repurchase around 11% of the outstanding shares. If sales decline, that factor alone can keep earnings per share up.
Meanwhile, investors prepare themselves for a drop in Pfizer’s COVID-19 sales. Over the previous decade, the stock has traded at an average P/E of 17 but currently trades at a much more reasonable P/E of 9. If Pfizer suffered a 50% drop in profits, the stock would still only be trading at a level roughly aligned with its long-term average.
Since it is unclear how quickly or how steeply income and earnings could diminish when vaccine demand declines, Pfizer (NYSE:PFE) may not be a screaming bargain. Long-term shareholders, however, have several reasons to contemplate keeping their shares for the foreseeable future.
Featured Image : Megapixl © Robwilson39
Author Shariq Khan 