Pfizer Inc.: Is It Time to Consider PFE Stock?
January 27, 2017
Upside for PFE Stock?
Pfizer Inc. (NYSE:PFE) stock is a research-based biopharmaceutical company that produces and manufactures vaccines and medical goods for customers around the world.
Shares of PFE stock are down nearly 20% over the past six months. Patient income investors may be wondering if this is an indicator to stay away from PFE stock, or if it’s time to consider an ownership stake.
The downward move in Pfizer stock was because there was a pullback in the entire sector. This is based on the bellwether exchange-traded fund (ETF) iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB), which saw a similar return over the same time period.
One reason why PFE stock traded lower was because, at the time, the U.S. presidential election had yet to conclude. During the campaign trail, Hilary Clinton was all for adding more regulations to the pharmaceutical sector. But with Trump winning the race to the White House, this is no longer a concern, as Trump wants to have as few restrictions as possible. (Source: “Twitter post,” Hillary Clinton Twitter account, September 21, 2015, 7:56 a.m.)
Fundamentals Overview
For PFE stock, consider the price-to-book ratio. This ratio compares the current stock price to the historic cost per share of the company. The lower the ratio, the better it is from an investment perspective.
PFE stock has a price-to-book ratio of 3.2 times, which is much cheaper than the industry average of 41.1 times. In comparison to this average, PFE stock is trading at a sustainable discount.
Another commonly important aspect of a company is it’s current debt. A business with too much debt may have to make changes to the business to address the problems or shoulder the burden and its impact on future costs. Note that interest rates in the U.S. have been gradually moving higher from their historic low levels, which is a negative for debt-heavy companies.
Also keep in mind the company’s debt-to-capital ratio—a calculation of the amount of debt that is held and a comparison to the company’s total debt and equity. A ratio below 50%, as is the case for PFE stock, means that the debt is being used well for the sake of growth and the debt poses no real danger.
For patient income investors, the advantage of PFE stock following the recent downward movement is that the current dividend yield is higher, since as the stock price falls, the dividend yield sees the reverse and increases.
PFE stock’s dividend yield is 4.1%, which is calculated using the most recent trading price of $31.25. A dividend growth stock, Pfizer stock is reviewed annually in December.
PFE stock could continue to see an increase in its dividend because less than half of earnings are paid out to shareholders. That the company’s debt is being well-managed also suggests the possibility of further dividend hikes.
Final Thoughts on PFE Stock
Even though the share price is down in the double-digits, it had nothing to do with the Pfizer fundamentally. Rather, it was due to the outcome of the presidential race. And with the election over, it is no longer a concern.
For patient income investors, PFE stock has a track record of rewarding shareholders with dividend increases. The stock is also paying a dividend yield that is double of that of the S&P 500 index.
