Is Pfizer’s Stock Overvalued or Undervalued?

Test tubes are seen in front of a displayed Pfizer logo in this illustration photo taken on May 21, 2021. Dado Ruvic/Illustration/Reuters

Pfizer Inc. shares have lagged the S&P 500 in 2021, generating a year-to-date total return of 16.6 percent.

Pfizer has gotten plenty of headlines for its COVID-19 vaccine, but investors may be wondering just how much value is left in the pharma giant’s stock?

Earnings

A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. For comparison, the S&P 500’s PE is currently at about 34, more than double its long-term average of 15.9.

Pfizer’s PE is currently 19, significantly below the S&P 500 average as a whole. Pfizer’s PE ratio is down 41.7 percent over the past five years, suggesting the stock is currently priced at the low end of its historical valuation range.

Growth

Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.3. Pfizer’s forward earnings multiple of 11.1 is still well below the multiple of the S&P 500 as a whole, making Pfizer stock look undervalued.

Pfizer’s forward PE ratio is even significantly lower than its health care sector peers, which are currently averaging a 16.3 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren’t everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 1; Pfizer’s PEG is 1.53, suggesting Pfizer is currently overvalued after accounting for its modest growth.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.14, well above its long-term average of 1.62. Pfizer’s PS ratio is 4.24, more than 35 percent higher than the S&P 500.

Finally, Wall Street analysts see value in Pfizer stock over the next 12 months. The average analyst price target among the 18 analysts covering Pfizer is $46, suggesting about 10.7 percent upside from current levels.

Verdict

At its current price, Pfizer stock appears to be slightly undervalued based on a sampling of common fundamental valuation metrics. The stock last traded at $41.41.

By Wayne Duggan

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