Pfizer (PFE)

Global pharmaceutical company Pfizer (NYSE:PFE) met Wall Streets revenue expectations in Q3 CY2025, but sales fell by 5.9% year on year to $16.65 billion. On the other hand, the company’s full-year revenue guidance of $62.5 billion at the midpoint came in 0.5% below analysts’ estimates. Its non-GAAP profit of $0.87 per share was 37% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1849 when two German immigrants opened a fine chemicals business in Brooklyn, Pfizer (NYSE:PFE) is a global biopharmaceutical company that discovers, develops, manufactures, and sells medicines and vaccines for a wide range of diseases and conditions.

Looking ahead, the branded pharmaceutical industry is positioned for tailwinds from advancements in precision medicine, increasing adoption of AI to enhance drug development efficiency, and growing global demand for treatments addressing chronic and rare diseases. However, headwinds include heightened regulatory scrutiny, pricing pressures from governments and insurers, and the looming patent cliffs for key blockbuster drugs. Patent cliffs bring about competition from generics, forcing branded pharmaceutical companies back to the drawing board to find the next big thing.

Pfizer's main competitors include other large pharmaceutical companies such as Johnson & Johnson (NYSE:JNJ), Merck (NYSE:MRK), Novartis (NYSE:NVS), Roche (OTCMKTS:RHHBY), AstraZeneca (NASDAQ:AZN), and Bristol Myers Squibb (NYSE:BMY). The company also faces competition from generic drug manufacturers once patents on its products expire.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $62.79 billion in revenue over the past 12 months, Pfizer is one of the most scaled enterprises in healthcare. This is particularly important because branded pharmaceuticals companies are volume-driven businesses due to their low margins.

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Pfizer’s sales grew at a mediocre 6.2% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Pfizer’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.8% annually.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Pfizer’s organic revenue was flat. Because this number is better than its two-year revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline results.

This quarter, Pfizer reported a rather uninspiring 5.9% year-on-year revenue decline to $16.65 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 2% over the next 12 months. Although this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.

Pfizer has been a well-oiled machine over the last five years. It demonstrated elite profitability for a healthcare business, boasting an average operating margin of 30.1%.

Analyzing the trend in its profitability, Pfizer’s operating margin decreased by 7.6 percentage points over the last five years, but it rose by 4.7 percentage points on a two-year basis. Still, shareholders will want to see Pfizer become more profitable in the future.

In Q3, Pfizer generated an operating margin profit margin of 20%, down 13 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Pfizer’s EPS grew at an unimpressive 2.3% compounded annual growth rate over the last five years, lower than its 6.2% annualized revenue growth. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as taxes affected its ultimate earnings.

We can take a deeper look into Pfizer’s earnings to better understand the drivers of its performance. As we mentioned earlier, Pfizer’s operating margin declined by 7.6 percentage points over the last five years. Its share count also grew by 1.4%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q3, Pfizer reported adjusted EPS of $0.87, down from $1.06 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Pfizer’s full-year EPS of $3.20 to shrink by 3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Pfizer has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 22% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Pfizer’s margin dropped by 29.5 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Pfizer hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 20.2%, impressive for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Pfizer’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Pfizer reported $14.98 billion of cash and $61.71 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $24.36 billion of EBITDA over the last 12 months, we view Pfizer’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $933 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Pfizer beat analysts’ EPS expectations this quarter. We were also happy its full-year EPS guidance narrowly outperformed Wall Street’s estimates. On the other hand, its organic revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $24.49 immediately after reporting.

Updated: December 3, 2025 at 11:10 PM EST

Before investing in or passing on Pfizer, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Pfizer doesn’t top our investment wishlist, but we understand that it’s not a bad business. Although its revenue growth was mediocre over the last five years and analysts expect growth to slow over the next 12 months, its scale makes it a trusted partner with negotiating leverage. Be wary, however, as Pfizer’s diminishing returns show management's prior bets haven't worked out.

Pfizer’s P/E ratio based on the next 12 months is 8.4x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $29.04 on the company (compared to the current share price of $25.52).