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Pfizer vs Eli Lilly Stock – Which is a Better Pick?

Pfizer vs Eli Lilly Stock – Which is a Better Pick?

we believe that Eli Lilly Stock (NYSE: LLY) is currently a better choice than its peer – Pfizer shares given the improved outlook. PFE stock trades at a much lower multiple of 2.8x revenue, versus 23.5x for LLY, and we think this valuation gap will remain wide in Eli Lilly’s favor. There’s more to the equation, and in the sections below we discuss why we think LLY will outperform PFE over the next three years. In this analysis, we compare a range of factors, including historical revenue growth, returns, and valuation.

1. LLY stock has done much better over the past three years

PFE stock has fallen 15% from $35 in early January 2021 to around $30 now, while LLY stock has seen extremely strong gains of 450% from $170 to around $935 in this period. This compares to a roughly 50% increase for the S&P 500 in this roughly three-year period. LLY stock has admirably outperformed the broader market over the past three years. However, PFE stock’s decline has been far from consistent. PFE’s returns were 60% in 2021, -13% in 2022, and -44% in 2023. For comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023, indicating that PFE underperformed the S&P until 2023.

In fact, consistently beat the S&P 500 — for better or worse — the past few years have been tough for individual stocks; for healthcare heavyweights including UNH and JNJ, and even for mega-cap stars GOOG, TSLA and MSFT. By contrast, the Trefis High Quality Portfolio, a collection of 30 stocks, outperformed the S&P 500 every year Over the same period. Why is that? As a group, HQ Portfolio shares delivered better returns with less risk compared to the benchmark index; it was less of a rollercoaster ride, as HQ Portfolio’s performance indicators show.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, PFE and LLY would underperform the S&P the next 12 months — or will they see higher levels? While we expect both stocks to trend higher, Eli Lilly is likely to outperform Pfizer.

2. Pfizer has seen better sales growth, but the future is in the hands of Eli Lilly

Pfizer’s sales increased at an average annual rate of 25.6% from $41.7 billion in 2020 to $58.5 billion in 2023, while Eli Lilly saw its revenue grow at an average annual pace of 11.9% from $24.5 billion to $34.1 billion over the same period.

Pfizer’s revenue in 2021 and 2022 on the back of very high demand for its Covid-19 vaccine and treatment. But this trend reversed in 2023, with total sales falling by a huge 42% year-on-year, amid lower demand for the Covid-19 vaccine. Of late, the company has been facing increased competition for its blockbuster vaccine – Prevnar – sales of which slowed to 1.6% last year, compared to 20.2% growth in 2022. On the positive side, a strong rise in Vyndaqel and Abrysvo has helped overall sales growth of late. Pfizer is also benefiting from its acquisition of Seagen, which is expected to add $10 billion to the company’s revenue by 2030, compared to the expected contribution of $3 billion in 2024.

Eli Lilly’s Revenue growth can be attributed to market share gains for some of its drugs, including Mounjaro, Verzenio, and Zyprexa. Eli Lilly’s diabetes drug – Mounjaro – and its obesity drug – Zepbound – are expected to experience explosive growth in the coming years, with annual peak sales of as much as $50 billion. In fact, there is currently a shortage of Zepbound’s drug and Eli Lilly is working on expanding capacity to meet the demand. Zepbound’s sales would be even higher if Eli Lilly were to meet the current demand. Moreover, Eli Lilly has a solid pipeline potential, mainly due to its obesity drugs. The increase in Eli Lilly’s P/S ratio in recent times has mainly been based on its future potential.

Looking ahead, we expect Pfizer’s revenue to grow at a compound annual rate of 3% from $58.5 billion in 2023 to $64.1 billion over the next three years. In contrast, we expect Eli Lilly’s revenue to grow at a much faster compound annual rate of 23% from $34.1 billion to $64 billion over this period.

3. Eli Lilly is more profitable and has a better debt position

Pfizer’s reported operating margin fell from 21.2% in 2020 to 5.7% in 2023, while Eli Lilly’s rose from 28.9% to 31.6%. While Eli Lilly increased its investments in research and development, with total R&D spending increasing 53% between 2020 and 2023, it reduced its SG&A expenses, which rose only 18% over the same period. The 36% increase in combined SG&A and R&D expenses was still lower than the 39% revenue growth over the period. Pfizer incurred restructuring charges and acquisition-related costs related to Seagen that weighed on its margin.

In terms of financial risk, both companies are similar. Given the massive rise in Eli Lilly’s stock, debt to equity is now just 3%, compared to 44% for Pfizer. The Seagen acquisition has led to a significant 2x increase in Pfizer’s debt levels to $68 billion, compared to $35 billion in 2022. Pfizer’s 5% cash to assets is marginally higher than Eli Lilly’s 4%. This implies that Pfizer has more cash buffer, while Eli Lilly has a better debt position.

The net of everything

We see that Eli Lilly is more profitable and has a better debt position. On the other hand, Pfizer has seen better revenue growth over the past three years and has a better cash buffer. Looking at the outlook, we still think Eli Lilly is a better pick given its robust outlook. From a valuation perspective, PFE stock looks attractive, trading at 2.9x sales versus 3.7x average P/S over the past four years. In comparison, LLY stock trades at 23.5x sales versus 11.1x average over the past four years. However, an increase in the valuation multiple for Eli Lilly makes sense given the massive growth in expected sales from its diabetes and obesity drugs, along with a promising pipeline. It will be a while before Eli Lilly can even meet the current demand for Zepbound. With regulatory approvals for more indications likely, there could be even more potential for peak sales of Eli Lilly’s key drugs. Overall, we think that despite a whopping 450% rise over the past three years, Eli Lilly remains a better choice than Pfizer. While we think PFE stock will also see higher levels, LLY’s growth will likely outpace it.

While LLY could outperform PFE over the next three years, it is useful to see how Colleagues from Pfizer rate on metrics that matter. Find other valuable comparisons for businesses across all industries at Comparisons with colleagues.

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