The pharmaceutical industry is poised for long-term growth due to aging populations, rising chronic diseases, and technological advancements driving the development of new drugs and therapies.
Pharma companies Pfizer Inc. (PFE) and Canada-based SNDL Inc. (SNDL) stand to gain from the industry tailwinds. However, when considering which stock to invest in, I believe that PFE holds the edge. Let's delve deeper into the factors that make PFE the superior pick for this month
The global pharmaceutical industry is set to reach heights, with projected revenue of $1.16 trillion this year. Looking ahead, the industry is expected to experience a steady CAGR of 5.4% from 2023-2027, resulting in a market volume of $1.44 trillion by 2027.
Moreover, in terms of global comparison, the US is anticipated to generate the highest revenue, reaching $624.10 billion this year. The future looks promising for the pharmaceutical sector, driven by advancements and increasing demand for healthcare solutions. Both PFE and SNDL are poised to benefit from such improvement in the industry.
PFE has gained marginally over the past five days, while SNDL returned 2.4%. Also, PFE’s marginal decline over the past month is lower than SNDL’s 14.5% decline.
Given below are the reasons why I think PFE is a better pick:
Latest Developments
On June 1st, 2023, PFE announced positive results from the Phase 3 program comprising the REVISIT and ASSEMBLE studies evaluating the efficacy, safety, and tolerability of the novel investigational antibiotic combination aztreonam-avibactam (ATM-AVI) in treating severe bacterial infections due to Gram-negative bacteria for which there are limited or no treatment options.
On May 31, PFE that the U.S. Food and Drug Administration (FDA) has approved ABRYSVO (Respiratory Syncytial Virus Vaccine), the company’s bivalent RSV prefusion F (RSVpreF) vaccine, for the prevention of lower respiratory tract disease caused by RSV in individuals 60 years and older.
On June 1, SNDL provided an update on its proposed transaction with Nova Cannabis Inc. to create a well-capitalized cannabis retail platform in Canada, as contemplated by the implementation agreement between SNDL and Nova dated December 20, 2022, as amended on April 3, 2023.
Recent Financial Results
PFE reported revenues of $18.28 billion in the fiscal first quarter that ended March 31, 2023. Its adjusted net income and EPS amounted to $7.04 billion and $1.23.
SNDL’s net revenues amounted to CAD202.50 million ($150.90 million) in the fiscal first quarter (ended March 31, 2023). Its net loss amounted to CAD36.10 million ($26.90 million). The company reported an adjusted EBITDA of CAD7.40 million ($5.51 million), compared to a loss of $0.70 million ($0.52 million) in the same quarter in the previous year.
Past and Expected Financial Performance
PFE’s revenue and EPS grew at a CAGR of 34.6% and 22.1%, respectively, over the past three years. Analysts expect PFE’s revenue to increase marginally in the next fiscal year 2024. The company’s EPS is expected to grow 5.5% next year.
On the other hand, SNDL’s revenue grew at a CAGR of 127.6% over the past three years. Analysts expect the company’s revenue to rise 39.3% this year.
Profitability
PFE’s trailing-12-month gross profit margin of 68.93% is higher than SNDL’s 18.89%. Moreover, PFE’s net income margin and EBIT margin of 31.25% and 38% compare to SNDL’s negative 37.1% and 9.60%, respectively.
Furthermore, PFE’s ROE, ROA, and ROTC of 31.66%, 17.21%, and 14.85% compare with SNDL’s negative 22.68%, 3.13%, and 20.57%, respectively.
Thus, PFE is more profitable.
Valuation
In terms of forward EV/EBITDA, SNDL is currently trading at 15.01x, higher than PFE, which is currently trading at 9.81x. However, SNDL’s forward EV/Sales multiple of 0.47 is lower than PFE’s 3.42.
POWR Ratings
PFE has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. SNDL, on the other hand, has an overall rating of F, which translates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. PFE has a grade of A for Value. Its forward non-GAAP P/E multiple of 11.48 is 42% lower than the industry average of 19.79. Its forward EV/EBITDA of 9.81x is 24.7% lower than the 13.04 industry average.
However, SNDL has a grade of D for Value. Its forward EV/EBITDA of 15.01x is 15.1% higher than the industry average of 13.04x
In the 168-stock Medical - Pharmaceuticals industry, PFE is ranked #35, while SNDL is ranked #165.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Growth, Sentiment, and Quality. Click here to view PFE Ratings. Get all SNDL ratings here.
The Winner
In times of heightened macroeconomic headwinds, the pharmaceutical industry becomes an attractive investment option due to its resilience and potential for steady performance.
However, PFE’s recent positive developments, high profitability, and lower-than-industry valuation make it a better buy this month compared to SNDL.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical-Pharmaceutical industry here.
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PFE shares were trading at $38.83 per share on Wednesday morning, up $0.46 (+1.20%). Year-to-date, PFE has declined -22.70%, versus a 12.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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