Weekly BullsEye | This Stock Has A 30% Upside, And It's Also A Familiar Name
During the COVID-19 pandemic, Pfizer's stock skyrocketed. However, over the past few years, Pfizer's stock seems to have lost its magic: after the company's overall revenue and net profit fell sharply, its stock price has reached a new low in nearly five years. This also implies that it might be the time for investors to enter the market.
Cancer Treatment Will Be Pfizer's Next Vital Point
For Pfizer, breakthrough cancer treatments could potentially provide a pathway back to growth. In December 2023, Pfizer completed a $43 billion acquisition of oncology company Seagen. Pfizer says that this acquisition has now doubled its oncology research and development projects. Investors seeking growth from Pfizer need to focus on this sector.
Seagen, a biotech company founded by former Bristol-Myers Squibb (BMS) executive Doctor Clay Siegall, has gradually risen to prominence since its IPO on NASDAQ in 2001, thanks to its outstanding performance in the Antibody-Drug Conjugates (ADC) field. Among its four approved cancer therapies, enfortumab vedotin, vinblastine, and tisotumab vedotin are all ADC drugs, which contributed a sizable revenue of $1.7 billion in 2022 for the company.
According to the GLOBOCAN report of 2020 by the International Agency for Research on Cancer, an estimated 50,550,287 cases of cancer would likely occur worldwide within five years. Meanwhile, it is projected that by 2040, the global incidence of new cancer cases will reach 28,887,940.
These data indicate that the global demand for cancer treatments will significantly increase in the coming years. The rise in cancer incidence increases the need for complex therapeutic drugs, boosting market expansion.
For Pfizer, after acquiring Seagen, Pfizer has set out to increase its market share.
Dividend Also Makes Its Stocks Attractive
For income-focused investors, it's an excellent time to pay close attention to Pfizer's stocks as its shares are historically low, yielding nearly 6% of the stock price. This means that as long as the company can maintain its current levels of cash and income generation, investors can expect this high level of passive income to continue.
The earnings growth rate is important because first and foremost for any sustainable long-term dividend growth, revenues must grow. Any assumed dividend growth rates will be limited by earnings growth at some point.
Looking at the data from five years before 2019, Pfizer's earnings growth was +5.47%. Although this figure has fluctuated significantly in recent years, we believe that it is reasonable to expect that Pfizer's earnings will return to levels close to those of 2019 in the next one or two years. Given inflation, a forecast for earnings growth in the 5%-6% range in the future is not unreasonable.
Therefore, from this perspective, when a pharmaceutical company not only slows down its business decline but also returns to an earlier growth stage, its stock will be very beneficial for investors, especially if the market allows them to buy at a reasonable price. For dividend investors, the situation is even better, as these types of stocks may realize above-average yields in the distant future.
Perhaps for these reasons, in a report released last week, Goldman Sachs analyst Vamil Divan said that he thinks Pfizer's stock is worth $36 per share. That would represent a rise of about 30% from Friday's closing price.
It may look unlikely, but having witnessed Pfizer's swift development of products such as the COVID-19 vaccine during the pandemic, we have reason to believe that although we can never guarantee Pfizer will have breakthroughs in research and development in the future, they are definitely making efforts in several directions.
And where there's effort, there's opportunity.