Drug developer Pfizer (Pfizer Stock Quote, Chart, News NYSE:PFE) may have a sweet dividend but investors should be cautious on the name, says Scotia Wealth advisor Stan Wong, who thinks Pfizer’s earnings growth profile looks questionable.
Pfizer is not a name that we have in our portfolio, although I do like the healthcare space quite a bit,” says Wong, director of wealth management at Scotia Wealth, who spoke on BNN Bloomberg on Thursday. “I think the the main attraction of Pfizer is the cash flow and getting that four-and-a-half percent dividend yield.”
“What's holding Pfizer back is the lack of expected earnings growth. We're looking at earnings growth in the low single digits,” Wong said. “You're paying about 12 and a half times [forward earnings], which is not really a high PE, but when you look at the growth expectations over the next while it’s a bit weak, so I think that's holding back the company.”
Pfizer’s stock performance over the past couple of years has been rather dismal, with its share price down nine per cent since July of 2018. For 2020, the stock is now down 13.7 per cent, with a 14 per cent drop in June alone.
The drug giant’s recent rough patch was in part due to a setback in the company’s pursuit of a breast cancer therapy in Ibrance (palbociclib). Pfizer was undergoing a Phase III early breast cancer PALLAS study comparing Ibrance plus standard endocrine therapy to endocrine therapy on its own. Results delivered in late May from the company said the drug was unlikely to show a statistically significant improvement.
“This result is not what we hoped for, but we are steadfast in our commitment to advancing the science and care for people living with breast cancer,” said Albert Bourla, Pfizer Chairman and CEO, in a press release.
“Given the continued breadth of our marketed portfolio and strength of our pipeline, our growth projections are not reliant upon any individual marketed medicine or pipeline opportunity. Consequently, we remain highly confident in our ability to deliver, following the closing of the proposed combination of Upjohn with Mylan N.V., a compound annual growth rate for revenues of at least 6 per cent through 2025,” Bourla said.
At the same time, Pfizer is making news with its work on a messenger RNA vaccine against the virus that causes COVID-19, conducted in collaboration with BioNTech.
Pfizer says if things go well, it could submit a potential vaccine to the US FDA for September with approval potentially coming in October.
Still, Wong says there may be other options for investors in the pharma field.
“I’d look towards companies like AbVie or Merck or other healthcare names that have a little bit more growth behind them and a similar valuation,” Wong said. “So right now we're out of Pfizer. A nice dividend but just not a lot of growth in there.”
Ahead of Pfizer’s second quarter earnings due on July 28, the company last posted in late April where its Q1 2020 beat analysts’ estimates for earnings and revenue with adjusted EPS of $0.80 per share and revenue down eight per cent to $12 billion. (All figures in US dollars.)