"Pfizer's combination of activist pressure, election year dynamics, and mental health market expansion creates a rare opportunity for value investors"

“Pfizer’s combination of activist pressure, election year dynamics, and mental health market expansion creates a rare opportunity for value investors”

By Karim Rahemtulla

October 30, 2024

Editor’s Note:

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In a market that’s been hungry for positive surprises, Pfizer (PFE) just served up a feast.

The pharmaceutical giant shattered Wall Street’s expectations, posting adjusted earnings of $1.06 per share – nearly double the expected $0.62.

But that’s just the appetizer in what could be a much bigger story unfolding.

The Perfect Storm of Catalysts

Three powerful forces are converging that could make PFE one of the most compelling plays of 2024:

#1: Activist Intervention

Starboard Value, led by renowned activist investor Jeff Smith, has thrown down the gauntlet.

They’re demanding accountability for what they call “$20B of value destruction” and pushing for a dramatic overhaul of Pfizer’s strategy.

History shows that when activists get involved, shareholders often win big.

#2: Election Year Dynamics

Healthcare stocks have historically outperformed during election cycles, with an average gain of 14.3% in election years.

As healthcare takes center stage in the upcoming political rallies, Pfizer’s diverse portfolio positions it perfectly to benefit from increased attention and potential policy changes.

#3: The Mental Health Crisis

Here’s a shocking statistic – over 70 million Americans are projected to need mental health support, creating unprecedented demand for antidepressants.

As the maker of Zoloft, Pfizer stands at the forefront of this expanding market.

The Numbers Are Simply Too Compelling to Ignore:

Q3 revenue: $17.7B (31% YoY growth)
Core business growth: 14% operational growth (excluding COVID products)
Seagen acquisition already contributing: $854M to top line
Raised 2024 guidance: $61B-$64B revenue (up from $59.5B-$62.5B)
Cost savings: Expected $4B+ by end of 2024 from realignment program

Hidden Strength in the Pipeline

While the market focuses on headline numbers, Pfizer’s oncology portfolio is quietly becoming a powerhouse:

Padcev showing exceptional growth
Xtandi maintaining market leadership
Lorbrena and Braftovi/Mektovi exceeding expectations

The Turnaround Potential

Currently trading well below its historical valuations, PFE presents what could be a rare opportunity.

With a dividend yield close to 6% and a forward P/E ratio that suggests significant undervaluation, the risk-reward ratio looks increasingly attractive.

Why This Could Be Different From Previous Rallies