The Pfizer share remains a cautionary tale for investors

<p>Looking back five years, Pfizer (NYSE: PFE) was trading at $ 34. Today, as I write this, the Pfizer stock is $ 34.50. Were it not for the dividend, Pfizer’s shareholders would have earned zero dollars on their investment in the pharmaceutical company during a period that saw the US markets as a whole generate a total return of 8.8%, more than twice as much as Pfizer’s earnings.

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But if you bought PFE at the beginning of the bull market in March 2009 and sold at its peak two years of $ 46.47 in December 2018, you would have won 241%, and that does not include dividends. Thank 4% per annum for dividends and you are talking about a compound annual growth rate of 17.4%.

I take it every day and twice on Sundays.

Unfortunately, if you bought Pfizer shares in March 1999, you have nothing to show for your 20-year investment other than dividends and 22% unrealized capital loss.

What if you put those dollars in Amazon (NASDAQ: AMZN)? I’m convinced you would not be as concerned about dividend stocks.

While Pfizer seems to have a lot for it – $ 10 billion in free cash flow means an FCF margin of 19.3% based on $ 51.75 billion in revenue from 2019 – it does not seem to be able to raise capital for its shareholders on a sustainable basis.

The last time I looked, the total return was defined as interest, capital gains, dividends and dividends that were realized during a certain period. The dividend is large, but without an increase in capital, these shares are only risky savings accounts.

Potential does not pay the bills

InvestorPlace contributor Chris Lau recently discussed why Pfizer shares are undervalued by 15%. His argument is about the idea that Pfizer’s pipeline of new products will drive it into growth mode and light a fire on the long-stagnant stock.

“The markets do not give Pfizer’s growing pipeline much of a premium. Pfizer shares are traded at a futures price of 13.2, “Lau commented on March 10.

He discusses some of the company’s success stories in 2019, including Ibrance (revenue up 23%) and Eliquis (sales growth of 26%), which accounted for 18% of Pfizer’s total revenue in 2019.

Hi, when you generate $ 10 billion in free cash flow and almost $ 52 billion in revenue, there is no doubt that you are doing the right thing. But as Chris points out, Pfizer will have declining revenues over the next two years with growth after that.

Pfizer is expected to have revenue of $ 48.5 billion to $ 50.5 billion by 2020, with an adjusted earnings of $ 2.82 to $ 2.92 per share. Another downturn in 2021 and beyond, the revenue streams will open up.

Evaluate, a company that specializes in drug data, recently discussed Pfizer’s CEO Albert Bourla’s plan to take the company from someone who uses financial technology and M&A to sell sales to a company with innovation and drug pipelines, something my colleague suggested.

As a result, Pfizer will not repurchase shares by 2020 – they bought back $ 9 billion in value in 2019 – and chose to allocate the capital to the pipeline of drugs they are developing.

“Mr. Bourla claims that emissions of older products have left Pfizer a competitive growth profile among its major pharmaceutical competencies, which may be true, but those prospects are largely driven by drugs already on the market,” said Evaluator Amy Brown on January 29. .

“In yesterday’s annual results presentation, we talked about what operating results are expected this year, but in reality this only highlighted how little there is to talk about.”

So does Pfizer do enough to move the ball uphill? Or does it just dress up its biopharmaceutical segment to look more innovative to investors than it really is?

The conclusion of the Pfizer share

A year ago, in March, I discussed how pharmaceutical companies such as Pfizer began raising drug prices without any apparent motivation. in many cases harm the people who could least afford to pay for these increases.

I do not realize that, but that is a big reason why I am skeptical of many of the drug stocks.

In Pfizer’s case, it is trying to sell investors with the idea that it is a changed company. That it is no longer about significant M&A transactions and share repurchases, but groundbreaking science.

Those who bought Pfizer in 1999 and still own it today (there may not be many) probably thought they were investing in an innovative company. Twenty years later, Pfizer is still trying to prove that they were not misled.

I like my colleague’s enthusiasm for Pfizer. But I just do not see it. There are better 4% returns out there if you are looking for income.

Will Ashworth has been writing about full-time investing since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the United States and Canada. He especially likes to create model portfolios that pass the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth had no position in any of the above securities.