Is Pfizer Stock a Buy?

Shares of pharmaceutical giant Pfizer (PFE 1.39%) have been steadily sliding lower over the past year as revenue and profits from the pandemic's vaccine boom dry up. Today, the stock has seemingly settled in the high $20s, near the lows of the past decade. It's time to get the word out: The pessimism on Pfizer stock has gone too far. At first glance, Pfizer looks like a money pit, but the stock is more of a table-pounding bargain. Here are three reasons investors should consider snapping up Pfizer as a long-term investment with market-beating potential. 1. This 6% dividend yield is no trap Pfizer has long been a dividend-paying stock and built a solid reputation by raising it for 14 consecutive years. Today, the dividend yield stands out more than the company's growth. Its current 6% yield is the highest outside of the financial crisis in 2008-2009. Sometimes, a high yield can be a red flag, a sign that the market isn't confident in the company's prospects and ability to continue to pay. Given Pfizer's slide, that seems to be the case. However, the market would be wrong. In Pfizer's Q1 earnings call, management clarified that maintaining and growing the dividend is the top priority in allocating capital. The math supports that assertion. Pfizer's annual dividend obligation is $1.68 per share, a manageable 75% payout ratio using the company's full-year earnings guidance of $2.25 per share. The company is working on paying down debt. Management paused share repurchases to free up the cash. Pfizer paid down $1.3 billion in Q1 and paid off another $1 billion in May. Investors shouldn't expect much more than a token dividend raise while management cleans up the balance sheet, but that's not a big deal when investors get a 6% starting yield. 2. Growth will begin again Pfizer made a ton of money on the COVID-19 vaccine and wisely used much of the proceeds to invest in future growth. Specifically, the company pulled off a blockbuster acquisition of Seagen for a whopping $43 billion in cash. Seagen was a pharmaceutical company focused on cancer treatments. The company's pipeline had multiple potential blockbuster drugs in the works that Pfizer believes will establish it as a leader in oncology by the decade's end. Management presented at an oncology event and estimated that it could double the number of patients treated by 2030, thanks to the addition of Seagen's pipeline. Unfortunately, Pfizer's COVID-19 vaccine (Comirnaty) and treatment (Paxlovid) became over half the business at one point, and unwinding that surge has been painful for the top and bottom lines: PFE Revenue (TTM) data by YCharts. Pandemic products accounted for only 16% of total sales in Q1 2024. Comirnaty was down 88% year over year, and Paxlovid was down 50%. Those sales will fall even further off Pfizer's comparable sales figures in the coming quarters. The good news is that oncology should begin driving renewed growth once these products are entirely out of the picture. Analysts estimate that Pfizer's earnings could grow by an average of 10.7% annually for the next three to five years. In other words, Pfizer's non-COVID-19 business is far healthier than the headlines make it sound. 3. Hard to ignore the stock at this price The overwhelming skepticism toward Pfizer has pushed shares to a remarkably low price. Today, the shares trade at a forward price-to-earnings ratio (P/E) of just under 12. Assuming Pfizer delivers the earnings growth that analysts believe it can, this could be a tremendous bargain in hindsight. After all, the stock has traded at an average of 19 times earnings for the past decade. It's reasonable to expect the stock's valuation to rise as growth resumes and Wall Street feels more confident in Pfizer again. But let's pretend that doesn't happen. Suppose the stock trades at its current P/E ratio forever. Well, investors are still looking at stellar returns. The company's estimated earnings growth already gets you to double-digit investment returns, and that juicy dividend means that total returns could be upwards of 16% to 17% annually. Investors should avoid getting overly optimistic because you never know what can go wrong -- and things go wrong all the time. Still, it's hard to look at Pfizer, a blue chip healthcare stock with a portfolio of promising oncology products, a cheap valuation, and a generous dividend, and not see good things happening.