To The Moon

KEY POINTS

• COVID-19 revenue has generated billions for Pfizer, but investors now may be worried about its future.
• Pfizer has been on an acquisition spree over the past year, aggressively adding to its portfolio.
• It has also been putting money back into its shareholders' pockets through buybacks and dividends.

Its vaccine recently obtained Emergency Use Authorization for children as young as six months.

Over the past year, Pfizer $Pfizer(PFE)$ has been one of the safer stocks to hold. Its 31% gain during that time eclipses the S&P 500 and its 9% loss. However, investors still aren't paying a huge premium for the stock as it trades at a relatively modest 12 times profits.

The company has been acquiring businesses to get stronger and more diverse in a post-COVID world. And at the same time, the Food and Drug Administration (FDA) has been expanding the age group that can use its vaccine. Is the stock worth buying?

Why Pfizer may not look like a great buy

The biggest reason investors may not be all that impressed with Pfizer is that its business has become too heavily dependent on COVID-19. This year, the company expects to generate $54 billion in sales from its COVID-19 vaccine and pill. That's more than half of the $102 billion it expects it could report in total revenue this year. And with the FDA recently granting Emergency Use Authorization for children between the ages of six months to four years, there's now an even wider pool of people who can access the vaccine.

However, an obvious problem would be that as concerns relating to COVID-19 subside, demand for vaccines and pills could drop. Ipsos conducts a recurring poll that tracks what is concerning people all over the world. In its June 2022 edition of "What Worries the World," COVID-19 was no longer the top concern (inflation now owns that distinction). Just 12% of people cited COVID as a major worry for their country this month, down from 36% a year ago.

Although Pfizer's business is more than just COVID products, investors are clearly not willing to pay a significant premium for the stock right now. However, over the past decade, it hasn't been uncommon for investors to be paying much more for Pfizer:

PE RATIODATA

Why Pfizer could be a good buy

Pfizer's COVID-19 revenue could very well continue for the foreseeable future as booster shots andlong COVIDare just some examples of why demand may not suddenly disappear.

However, the company is also preparing for the inevitability that its revenue from COVID-19 will start to drop off. In just the past year, the company has made multiple acquisitions in the healthcare industry. In May, it acquired Biohaven Pharmaceuticals for $11.6 billion. A month earlier, it announced the acquisition of ReViral for up to $525 million. In December, it announced it was acquiring Arena Pharmaceuticals for $6.7 billion.

Not all of these moves may pay off for the business, but the acquisition of more assets expands Pfizer's pipeline and sets the company up for some better growth prospects down the road. It has been a vastly different approach from rival Moderna, and that's why Pfizer looks like the better long-term buy. 

Pfizer has been accumulating tens of billions in cash thanks to its COVID-19 products over the past year, and that has enabled it to take on some more aggressive growth strategies.

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Another added incentive for Pfizer investors is that the company is using that money to reward its shareholders. Currently, thehealthcare companypays a dividend that yields 3.1%, which is more than double the rate of the average S&P 500 stock. Through the first three months of this year, the company spent $4.2 billion on dividends and share repurchases, which can help bolster the stock's price and result in greater gains for investors.

Should you buy Pfizer stock?

There are more reasons to buy Pfizer than there are to sell it. The company ditched its off-patent drug business (Upjohn) in 2020 to focus more on growth, and that's exactly what it's doing with these acquisitions. It can be difficult to predict just what the company's financials will look like in a year or two. However, even without COVID-19 revenue, Pfizer's still generating close to $50 billion in sales from its other products. For example, Ibrance and Eliquis combined for just over $3 billion in revenue in the first quarter.

Pfizer's business isn't solely dependent on COVID-19, and investors could be making a big mistake in discounting it for that reason. At a modest valuation, the stock could make for one heck of a buy right now.