Pfizer (NYSE: PFE) is strategically focusing on long-term growth through debt reduction, pipeline advancements, and potential blockbuster drugs, particularly in oncology and obesity. The company's current valuation, lower than its historical average, presents an opportunity for investors willing to look beyond short-term challenges.
Financial Strategy and Debt Management
Following the acquisition of Seagen, Pfizer is prioritizing paying down its debt. As of the third quarter, the company held $56.9 billion in long-term debt and $9.7 billion in current debt. Management aims to deleverage the company to free up capital for internal research and development (R&D) investments.
Pipeline Development and Oncology Focus
Pfizer's pipeline includes several cancer drugs currently in Phase 3 clinical trials. While these drugs are not expected to be immediate blockbusters, they could contribute to steady growth in earnings and share price. The company's acquisition of Seagen further strengthens its position in the oncology market.
Anti-Obesity Candidate: A Potential Blockbuster
In the long term, Pfizer's anti-obesity candidate, currently scheduled to enter Phase 2 clinical trials, represents a significant growth opportunity. However, the drug's earning potential remains uncertain until mid-stage efficacy results are determined and published. Investors are advised to remain skeptical until more data becomes available.
Valuation and Long-Term Investment
Pfizer's valuation is currently cheaper than its historical average. Over the past 10 years, its average price-to-sales (P/S) ratio was close to 4, whereas right now it's 2.4. While the company's trailing 12-month revenue of $59.3 billion is lower than its peak of more than $100.3 billion in 2022, its ability to consistently add to its revenue and earnings makes it an attractive long-term investment.
Pfizer's forward dividend yield is 6.5%. In the trailing 12-month period, the company paid out $9.4 billion in dividends while only reporting net income of $4.2 billion. Its operating cash flow of $11.2 billion over that period suggests there isn't much immediate danger of the dividend getting cut, it's reasonable to expect that the payment won't increase by more than a token amount over the next couple of years or so, when its general financial situation is slated to improve.
Investors with a long time horizon may find Pfizer an appealing option, betting that the company will rebound and its valuation will increase over time.
