Pfizer: Cutting Valuation on Lower-Than-Expected 2024 Guidance and Weak COVID-19 Sales Outlook – Morningstar

We are lowering our fair value estimate for Pfizer PFE to $42 from $47, largely based on the companys lower-than-expected 2024 guidance. Following the close of the Seagen acquisition, Pfizers guidance included COVID-19 product guidance of $8 billion, which was $5 billion lower than our expectation. Management also acknowledged the firm would be unlikely to hit its previous guidance of 6% growth rate for 2020-25 (excluding COVID-19 product sales). Despite the falling outlook, Pfizer reiterated support for the dividend, which we believe is secure and will likely support the stock valuation.

The lower COVID-19 product guidance is the key driver for our lowered fair value estimate. We continue to expect a long-term tail for COVID-19 vaccine Comirnaty and COVID-19 treatment Paxlovid, but we are cutting our projections based on Pfizers guidance and the trend of lost market share to Moderna thats been seen over the past few months. While there is a potential upside to our COVID-19 product sales projections, as Pfizer management may be reacting a bit to missed overly optimistic 2023 COVID-19 sales guidance, we still see the stock as undervalued with the lowered COVID-19 sales projections.

The cost-cutting plans Pfizer set out earlier in the year to adapt to the receding COVID-19 pandemic look on track, and they should help improve margins in 2024 and 2025. The company will likely cut $4 billion in operating costs by the end of 2024. These cuts should fall to the bottom line rather than be redeployed to other initiatives. The ability to significantly cut costs and adapt to scale helps increase returns and reinforce the firms moat.

The Seagen acquisition is largely closing in line with our expectations. Seagens $3.1 billion sales guidance for 2024 is largely similar to our expectations. However, the $0.40 earnings hit expected in 2024 from the deal is slightly worse than our expectations.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstars editorial policies.

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Pfizer: Cutting Valuation on Lower-Than-Expected 2024 Guidance and Weak COVID-19 Sales Outlook - Morningstar