Pfizer (NYSE:PFE) stock price skyrocketed Monday morning ET following a Wall Street Journal article last weekend reporting a $1 billion investment in the company by activist investor Starboard Value. By 11:20 a.m., it was up 3.1%.
Starboard is offering to help Pfizer rebuild its business, as its stock has fallen 50% from its all-time high at the height of the pandemic.
How did Pfizer get into trouble?
As the magazine explains, Pfizer was betting big on a vaccine to protect people from the coronavirus, but as the pandemic subsided, so too did interest in its mRNA vaccine (and its sales). The company also lagged behind developing GLP-1 weight-loss drugs, which have supported the businesses of rivals Novo Nordisk and Eli Lilly. Meanwhile, Pfizer is spending its pandemic winnings like a drunken sailor, buying $5.4 billion to buy Global Blood Therapeutics, $6.7 billion to buy Arena Pharmaceuticals, and buying Biohaven Pharmaceuticals. It spent $11.6 billion on the acquisition of Matheutical and $43 billion on Segen and its anti-cancer drugs.
But despite all that investment, Pfizer’s sales have plummeted from more than $100 billion in 2022 to just $55 billion in the past 12 months.
Is Pfizer stock worth buying?
According to the Journal, Starboard has approached several former Pfizer executives, including former CEO Ian Reid and former Chief Financial Officer Frank D’Amelio, to help with the turnaround. However, it is not entirely clear what additional measures Starboard will recommend, as Pfizer has already announced that it will cut costs by $3.5 billion in 2024 and will continue to do so.
It might be a good idea to go back to basics first. For example, under Mr. Reed’s leadership, Pfizer regularly generated positive free cash flow in the range of $13 billion to $14 billion annually. And even before the pandemic, the company was still generating positive free cash flow of $10 billion, or twice its current level. Just getting back to $10 billion would reduce the price-to-free cash flow ratio to the mid-teens, but that level could start to attract value investors again.
Fingers crossed.
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Rich Smith has no position in any stocks mentioned. The Motley Fool has a position in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
The article “Why Pfizer Stock Soared on Monday” was first published by The Motley Fool.
