Pfizer (PFE 2.89%) stock jumped 3.1% through 11:20 a.m. ET Monday morning in response to a Wall Street Journal article over the weekend, reporting on a $1 billion investment in the company by activist investor Starboard Value.
With Pfizer stock down 50% from the record-high prices its shares commanded during the height of the pandemic, Starboard is offering to help Pfizer turn its business around.
How Pfizer got itself in a pickle
As the Journal explains, Pfizer bet big on vaccines to protect people from COVID, but as the pandemic waned, so did interest in (and sales of) its mRNA vaccines. The company was also late out of the gate on GLP-1 weight loss drugs that have been powering the businesses of rivals Novo Nordisk and Eli Lilly. Meanwhile, Pfizer’s been spending its pandemic winnings like a drunken sailor, splashing out $5.4 billion to buy Global Blood Therapeutics, $6.7 billion to buy Arena Pharmaceuticals, $11.6 billion for Biohaven Pharmaceutical, and $43 billion for Seagen and its cancer drugs.
But despite all the investment, Pfizer’s sales have plummeted from more than $100 billion in 2022 to just $55 billion over the last 12 months.
Is Pfizer stock a buy?
WSJ says Starboard has approached a couple ex-Pfizer executives — former CEO Ian Read and former CFO Frank D’Amelio — to assist with a turnaround. But Pfizer’s already announced it’s cutting costs by $3.5 billion in 2024, and will keep cutting in future years, so it’s not entirely clear what additional measures Starboard will recommend.
Getting back to basics might be a good first start. Under Read’s leadership, for example, Pfizer regularly churned out positive free cash flow in the $13 billion to $14 billion range annually. And even just pre-pandemic, the company was still generating positive free cash flow of $10 billion, or twice today’s level. Just getting back to $10 billion would get the stock’s price-to-free cash flow ratio down into the mid-teens — a level that might begin attracting value investors again.
Fingers crossed.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
