If you invested $ 5,000 in Pfizer a year ago, this is what you would have today

While Pfizer (NYSE: PFE) was the first coronavirus vaccine developer to get its product approved by regulators, its inventory is down 3.5% in the past year. It is well below the S&P 500gain of 15% over the same period. Many investors rightly ask: what gives?

It turns out that the culprit is not the coronavirus vaccine but the core business of the company. If you had invested $ 5,000 in Pfizer a year ago, you would have lost about $ 175 of your money. Fortunately, the company has the catalyst it needs this year to revive momentum and turn investor losses into gains.

What did not go well?

Currently, the United States Food and Drug Administration (FDA) is approving a record number of generic drugs to bring down drug prices. The initiative brings much-needed relief to patients and insurers, but has been simply a nightmare for generic drugmakers like Pfizer’s former subsidiary Upjohn.

More competing products reduce profit margins and growth potential for everyone. Upjohn’s revenue fell nearly 20% year-over-year in the third quarter of 2020. Things got so badly that Pfizer decided to part ways with the company. means losses of about $ 8.5 billion, or about 14.5%, in annual revenue.

Can the coronavirus vaccine save Pfizer?

Without the rewards of the coronavirus vaccine, management estimates that Pfizer would achieve sales of $ 40.8 billion to $ 42.4 billion for 2020 and increase that metric by 6% per year through 2025. After taking into account his vaccine (Comirnaty), however, everything changes.

During clinical tests, Comirnaty has shown 95% effectiveness against COVID-19. Only mild to moderate side effects have been reported after vaccination. This kind of risk-reward balance is exceptionally favorable. So far, regulatory agencies in more than 45 countries have cleared the vaccine for use.

Pfizer, with its partner BioNTech (NASDAQ: BNTX), has received orders for more than a billion doses of its vaccine. With a price of $ 14.70- $ 19.50 per dose, that would bring Pfizer a potential of $ 7.5-10 billion in future revenue (after adjusting for a 50/50 gross profit split with BioNTech) . It’s safe to say that Pfizer should be able to replace all of its lost sales from the Upjohn spin-off, and more.

In addition, the company has six manufacturing plants around the world to produce Comirnaty. This includes the installation of BioNTech in Marburg, Germany, which could potentially produce more than 750 million doses of the coronavirus vaccine each year. Production will begin there in February.

Management has also raised its production expectations, estimating that Pfizer will be able to manufacture 2 billion doses of its coronavirus vaccine this year, up from a previous estimate of 1.3 billion. Best of all, Comirnaty has also demonstrated its effectiveness against currently circulating mutated strains of SARS-CoV-2.

What’s the verdict?

This year, Pfizer expects to generate up to $ 3.10 in earnings per share from its new coronavirus vaccine. That’s an impressive 30% increase from the upper limit of his 2020 profit estimate of $ 2.38.

Given its growth trajectory, Pfizer is an incredible deal trading at 4.3 times sales and 20 times free cash flow. The company also benefits from prudent leverage with a debt ratio of just 0.3. (When this multiple is greater than 1, it means that a company may have difficulty meeting its loan obligations. Pfizer is not.)

For these reasons, I recommend that those who have purchased Pfizer continue to hold inventory. If you haven’t bought the stock yet, now is a good time to take action. Right now, there is a shortage of coronavirus vaccines around the world. Pfizer would also be able to exceed revenue expectations if vaccinated patients needed booster vaccines as immunity waned over time. There’s one final bonus: Biotech also enjoys an impressive 4% annual dividend yield.