To The Moon

$Pfizer(PFE)$

Pfizer (NYSE: PFE), one of the world’s largest pharmaceutical companies, has faced a challenging start to 2025. The first quarter results revealed a 6% decline in revenue compared to the same period last year, largely due to falling sales of its flagship COVID-19 antiviral treatment, Paxlovid. This decline reflects external regulatory and policy shifts, particularly the changes introduced by the Inflation Reduction Act (IRA) and the Medicare Part D redesign, which have altered pricing and reimbursement dynamics in the U.S. healthcare system.

Despite this setback, Pfizer reaffirmed its full-year revenue and profit guidance for 2025, underscoring management’s confidence in navigating the current environment. While the first quarter was somewhat lackluster for investors, it was in line with the company’s forecasts, suggesting that the revenue drop was largely anticipated and priced in.

Looking beyond the immediate quarterly numbers, Pfizer’s 2025 roadmap includes several potential catalysts that could positively influence its share price, including upcoming clinical trial readouts, regulatory approvals, and ongoing cost-saving initiatives. Additionally, Pfizer’s attractive dividend yield remains a magnet for income-focused investors. This article provides an in-depth look at Pfizer’s longer-term revenue outlook, profitability metrics, industry positioning, and valuation—ultimately addressing whether the stock presents a buying opportunity today.

Pfizer’s Revenue: The COVID-19 Effect and Beyond

Pfizer’s revenue story over the past two decades has been characterized by volatility, driven largely by the extraordinary circumstances of the COVID-19 pandemic. The company experienced a staggering surge in sales in 2022, with total revenues hitting an unprecedented $101 billion, largely fueled by Comirnaty, the Pfizer-BioNTech COVID-19 vaccine, and the oral antiviral Paxlovid.

This pandemic windfall was a remarkable outlier, with Pfizer becoming one of the key beneficiaries of global efforts to combat COVID-19. However, such growth was never sustainable in the long term. Following this peak, Pfizer’s revenue pulled back to $59.7 billion in 2023, before stabilizing around $62.5 billion in 2025 based on company guidance.

While this is a significant contraction from the 2022 highs, it is important to contextualize the current revenue figures. Pfizer’s 2025 projected revenue remains well above the levels seen pre-pandemic, except for the exceptional year of 2010. This indicates that Pfizer’s revenue base has not completely reverted to pre-COVID levels but rather settled at a new, higher plateau.

In other words, while Pfizer’s explosive pandemic-era growth has normalized, the company’s underlying business remains fundamentally stronger than it was prior to 2020, with new product launches, portfolio diversification, and continued global demand supporting this elevated revenue floor.

Profitability and Return on Invested Capital: How Efficient is Pfizer?

When evaluating a company’s financial health and management effectiveness, Return on Invested Capital (ROIC) is a key metric. It measures how efficiently a company is using the capital invested by shareholders and debt holders to generate profits.

Pfizer’s ROIC currently sits around 9%, which is above its weighted average cost of capital (WACC) of approximately 7.74%. This means Pfizer is generating returns above the cost of the funds it uses to operate—a positive sign indicating value creation.

However, the story isn’t as straightforward as it seems. What many investors overlook is the trend in ROIC over time. Ideally, for a high-quality company, you want to see a steadily improving ROIC trend, reflecting growing operational efficiency and better capital allocation decisions by management.

In Pfizer’s case, the ROIC trend has been volatile and inconsistent, with the metric oscillating over recent years rather than showing sustained improvement. This volatility may stem from multiple factors, including patent expirations, changing product mix, R&D spending variability, and the extraordinary effects of the pandemic.

A related point of interest is how Pfizer manages profits that it does not distribute to shareholders. Even though Pfizer returns capital via dividends, it retains some earnings to reinvest in the business. These retained profits belong to shareholders, and their effective reinvestment is critical to future growth. If reinvested capital generates returns above the WACC, shareholders benefit in the long run.

On the cost side, Pfizer’s capital structure includes:

• Cost of debt: ~7.12%

• Cost of equity: ~7.9%

These are moderate and manageable figures, supporting the company’s ability to invest and operate efficiently without excessive financial risk.

The Defensive Nature of Healthcare: Why Investors Are Drawn to Pfizer

Healthcare companies like Pfizer are favored by many investors due to their relatively low correlation with the broader economy. Unlike cyclical sectors—such as automotive, retail, or consumer discretionary—demand for healthcare products tends to be inelastic and based on essential needs rather than discretionary spending.

This means that even during economic downturns or recessions, people still require medicines and treatments. Unlike buying a new car or luxury goods, healthcare consumption is often non-negotiable, which provides a natural defense against economic volatility.

That said, affordability and access still play a role, especially in markets like the U.S. where healthcare costs and insurance coverage impact consumer decisions. Consequently, while healthcare stocks like Pfizer are less sensitive to economic cycles, they are not completely immune.

This defensive attribute, combined with Pfizer’s consistent dividend payments and strong cash flow generation, make it a popular choice for income-seeking investors and those looking to reduce portfolio volatility.

Valuation: Is Pfizer Stock Undervalued?

Turning to valuation, my proprietary discounted cash flow (DCF) model values Pfizer stock at roughly $68.70 per share, a significant premium over the current market price near $23 (as of May 2025).

This large gap suggests Pfizer stock may be deeply undervalued by the market. The DCF model incorporates conservative assumptions about future revenue growth, margins, capital expenditures, and cost of capital, painting a picture of intrinsic value well above current prices.

Supporting this undervaluation thesis, other valuation metrics reinforce the idea that Pfizer is trading cheaply:

• Forward Price-to-Earnings (P/E) ratio stands around 8.3x, near its lowest levels in over a decade.

• The dividend yield remains attractive, appealing to income investors in a low-rate environment.

• Pfizer’s ongoing multi-billion dollar cost-saving program is expected to improve operational efficiency and boost profitability over the medium term.

The market’s focus on Pfizer’s post-COVID revenue normalization may have created an overly pessimistic narrative, overlooking the company’s substantial cash flow generation, stable revenue base, and promising pipeline prospects.

Potential Catalysts and Risks

Several factors could act as positive catalysts for Pfizer’s stock price in 2025 and beyond:

• Regulatory approvals and clinical trial readouts for new drugs in Pfizer’s pipeline could unlock significant value.

• The company’s cost-saving initiatives, aimed at improving operating margins, may lead to higher profitability and free cash flow.

• Strategic acquisitions or partnerships could enhance Pfizer’s product portfolio and growth prospects.

• Continued demand for existing drugs and vaccines, as well as potential new indications, could sustain revenue.

However, there are risks to consider:

• Pricing pressures due to regulatory reforms and increased scrutiny on drug costs, especially in the U.S.

• The possibility of new competitors or generic entrants eroding market share on key products.

• The inherent uncertainty in drug development and clinical trial outcomes.

Despite these risks, Pfizer’s diversified portfolio, strong balance sheet, and operational scale position it well to navigate challenges.

Conclusion: Pfizer Remains a Buy at Current Levels

Pfizer’s first quarter of 2025 may not have thrilled investors, but the broader picture is encouraging. The company has weathered the post-pandemic revenue adjustment and settled into a stable, elevated revenue base. Its ability to generate returns above its cost of capital, combined with a defensive industry position and a healthy dividend, makes Pfizer a compelling investment.

Valuation metrics and my discounted cash flow model both suggest that Pfizer is significantly undervalued today. With multiple potential upside catalysts and cost-saving programs underway, the stock presents a favorable risk-reward profile for long-term investors.

I last rated Pfizer as a Buy at the end of 2024, and my conviction has only strengthened as of May 2025.

Final Takeaway:

For investors seeking a blend of value, income, and defensive sector exposure, Pfizer offers an attractive opportunity in the current market environment. While growth may be modest compared to its pandemic peak, Pfizer’s fundamentals and valuation indicate it is well positioned for steady returns over the coming years.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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