Pfizer Vaccine Shows Promise for Huge Near-Term Growth

Pfizer PFE reported fourth-quarter results largely in line with our expectations, and we don't expect any major changes to our fair value estimate. We continue to view the stock as undervalued with the market not appreciating the long-term potential growth coming from recently launched drugs and an improving pipeline, which also reinforces our wide moat rating. In the quarter, total sales increased 11% operationally, boosted by 200 basis points from COVID-19 vaccine sales. Pfizer reported $154 million in COVID-19 vaccine sales (from BNT162b2) and expects to generate close to $15 billion in COVID-19 vaccine sales in 2021, similar to our own projections. There is potential upside as Pfizer expects to deliver up to 2 billion doses in 2021, but the firm hasn't included the full supply into the guidance as contracting isn't completed. The vaccine is priced lower due to the social obligations of the firm (U.S. pricing is $19.50 per dose, versus a more typical range of $150-$170), and Pfizer pays a profit share with BioNTech that lowers its gross margin. Pfizer stated operating margins for the vaccine are in the high-20% range, below Pfizer's overall high-30% range. Due to the lower margins and likely short duration of sales, we don't expect the COVID-19 vaccine to have major impact on Pfizer's valuation, but increasing COVID-19 variants mean booster shots may be needed, which should help drive sales into 2022. Beyond the COVID-19 vaccine, Pfizer is executing well, and we expect Pfizer to meet its guidance for sales growth of at least 6% annually through 2025 with faster earnings growth. We expect continued steady growth from cardiovascular drug Vyndamax (due to a low diagnosed rate of less than 10% in developed markets), cancer drug Ibrance (due to a strong first-mover advantage helping to achieve 80% market share in new patients despite strong data from competing drugs) and atrial fibrillation drug Eliquis (taking share from older, less effective warfarin).

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.