HomeBusinessIs Pfizer Stock the Biggest Buy in the S&P 500?

Is Pfizer Stock the Biggest Buy in the S&P 500?

Pfizer (NYSE:PFE) shares are relatively cheap. I can easily back up that statement. The major drugmaker’s shares trade at lower earnings multiples than the S&P500 and the healthcare sector from the S&P 500. That meets the definition of relatively cheap.

However, I wouldn’t go so far as to say that Pfizer is the cheapest stock in the S&P 500. At least, I wouldn’t have until I recently saw something that blew me away and made me wonder if maybe Pfizer was. the biggest bargain in the widely followed index.

An alarmingly low valuation standard

Let me immediately acknowledge that Pfizer is emphatic not the cheapest S&P 500 share based on the rolling price-earnings ratios (P/E) over a period of twelve months or over a period of time. There are dozens of stocks with lower multiples.

But the relationship between price and earnings and growth (PEG) is a different story. Yahoo! Finance shows Pfizer’s PEG ratio at 0.27. The website obtains this data from Morningstar, a respected financial services company. To put this value into perspective, an attractive PEG ratio is considered to be slightly below 1.0. A PEG ratio of 0.27 is shockingly low.

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So is Pfizer the biggest buy in the S&P 500 based on PEG ratio? No, but it seems to be an exciting battle. EQT‘s PEG ratio is 0.2, according to Yahoo! Finances.

Please note that you may be able to find different PEG ratios for Pfizer on other websites. One possible reason is that financial services companies may use different look-ahead periods in their growth forecasts. Morningstar’s PEG ratios include five-year growth projections. Different analysts can also arrive at different growth estimates for the same period.

Questions about Pfizer’s super low PEG ratio

I am sometimes skeptical when I see surprising information. Because of my familiarity with Pfizer’s business, I was suspicious of the company’s PEG ratio of 0.27.

PEG ratios are calculated by dividing a stock’s trailing twelve-month price/earnings ratio by its expected annual growth rate. Pfizer’s trailing-twelve-month price-to-earnings ratio is just over 72. To achieve a PEG ratio of 0.27, the company would need to achieve average annual earnings growth of almost 267%. I don’t think Pfizer will come close to achieving that level of growth in the next five years.

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The major drugmaker’s adjusted profits fell 91% in the fourth quarter of 2023 due to declining sales of COVID-19 products. Pfizer’s expectations corrected full-year 2024 earnings growth by about 17%. That’s good, but way less than 267%.

Pfizer will be confronted with a patent cliff in the coming years. Several blockbuster drugs will lose their patent exclusivity, including Eliquis, Ibrance, Inlyta, Xeljanz, Xtandi and Vyndaqel. Pfizer expects this loss of exclusivity to result in a negative impact of roughly $17 billion in annual revenue by 2030.

Certainly, the company believes that the launch of new products will more than offset the impact of the looming patent cliff. It also expects business development deals to contribute another $25 billion in annual revenue by 2030. However, Pfizer expects revenues to grow at a compound annual growth rate of 10% between 2025 and 2030. I don’t see any way profits will skyrocket. times faster than turnover. I doubt Pfizer does either.

A bargain, but not That big of a bargain

In my opinion, Pfizer’s actual PEG ratio is not nearly as low as 0.27. I suspect Yahoo! Finance (or maybe Morningstar) has a problem with its data feed.

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There are two important lessons for investors from my research into Pfizer’s suspiciously low PEG ratio. First, don’t make investment decisions based solely on the statistics you see online. Second, understand a company’s business well enough that you can spot potentially suspicious data.

That said, I like Pfizer and consider the stock a solid choice for income and value investors. Pfizer is a bargain. It’s just not that so big of a bargain.

Should you invest €1,000 in Pfizer now?

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Keith Speights has positions in Pfizer. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool has a disclosure policy.

Is Pfizer Stock the Biggest Buy in the S&P 500? was originally published by The Motley Fool

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