Is Pfizer Stock a Bargain for Long-Term Investors?

The Federal Reserve's ongoing rate-cutting cycle is already triggering a major shift in investor sentiment. As yields on fixed-income investments decline, institutional investors are clearly rotating into dividend-paying stocks, particularly those trading at reasonable valuations and above-average yields. In fact, several high-yield dividend stocks have outperformed the S&P 500 in 2024. This environment makes Pfizer's (PFE -0.74%) hefty 5.9% dividend yield and rock-bottom valuation especially intriguing.

The pharmaceutical giant's stock has severely lagged the broader market in 2024, falling 2.43% while the S&P 500 has surged 21.4% this year. Trading at just 9.4 times forward earnings-a steep discount to its peer group average of 17 times-Wall Street seems fixated on Pfizer's uneven COVID revenues, competitive positioning in key areas like oncology, and recent business development activities.

But beneath this avalanche of pessimism lies an intriguing transformation story that investors might be missing. Read on to find out more.

Execution drives core growth

Pfizer's non-COVID product revenues surged 14% operationally last quarter. The oncology business delivered exceptional performance, with revenue jumping 31% to $4 billion, making Pfizer the third-largest biopharma company in oncology through the first half of 2024.

The recently acquired Seagen portfolio contributed $854 million, highlighted by the strong uptake of Padcev. When combined with Merck's Keytruda (pembrolizumab), this therapy has become the most prescribed first-line treatment in the U.S. for locally advanced or metastatic urothelial cancer.

Several other key products also showed strong momentum during the quarter. Specifically, Vyndaqel family revenues grew 63% operationally, driven by increasing diagnosis rates and improved patient access-the therapy is now reimbursed in 44 markets globally and growing.

Sales of the top-selling anticoagulant Eliquis grew by 9% operationally during the three-month period, driven by continued oral anticoagulant adoption and market share gains in the non-valvular atrial fibrillation indication in the U.S. and certain markets in Europe.

These strong financial results demonstrate Pfizer's successful pivot from COVID dependency to sustainable growth drivers. With the oncology franchise expanding rapidly and established medicines gaining market share, the company's discounted valuation appears increasingly disconnected from its operational performance.

Cost discipline drives innovation

On the cost-savings front, management remains on track to deliver $4 billion in net cost savings by year-end through its realignment program. An additional $1.5 billion in manufacturing optimization savings are targeted by 2027, demonstrating Pfizer's commitment to operational efficiency.

The drugmaker's transformation extends beyond cost-cutting. Pfizer has successfully integrated Seagen and created an end-to-end oncology research organization in the process, retaining key talent while accelerating pipeline development. The company also brought in noted research analyst Andrew Baum to help prioritize research investments and guide future business development.

Reinvention amid market skepticism

While Wall Street remains overly pessimistic about this top pharma company, Pfizer's core business shows surprising strength. The company's pivot to oncology as its core value driver is accelerating following its acquisition of Seagen.

Moreover, its strong showing on the clinical front with a variety of experimental oncology medicines and groundbreaking vaccines suggests Pfizer's steep discount -- relative to its big pharma peers -- might be unwarranted.

Time to buy?

As rate cuts continue to drive a rotation into high-yielding dividend stocks with compelling valuations, this high-yielding pharmaceutical leader scans as a top buy right now. That said, Pfizer's transformation is far from over, with several important challenges, such as its upcoming patent cliff, remaining firmly in view. However, for investors with a long-term mindset, this proven innovator presents an intriguing risk-to-reward ratio. Its hefty yield should also appeal to income investors.