This 6.75%-Yielding Dividend Stock Can Gain 33%

Pfizer (NYSE:PFE) shares are finally starting to attract attention after gaining close to 7% in a single trading session on news that it’s reached a pricing deal with the Trump administration. Indeed, this is the biggest up day for shares of PFE in recent memory. And while investors are upbeat on the pricing plan, I do think that income investors should focus on the longer-term opportunity at hand.

Indeed, the latest upswing in the ailing pharmaceutical stock has compressed the dividend yield by close to 0.5% in the past week. After the sudden surge, PFE stock boasts a smaller, but still attractive 6.75% dividend yield, and it’s a well-covered one.

TrumpRX has moved the needle for PFE stock. Could more similar deals be on the horizon for other drugmakers?

In any case, I think the latest spike in PFE stock is just the start of a sustained run back to higher levels, especially as “TrumpRX” looks to give Pfizer a much-needed boost after spending most of the last year falling further into the abyss. With Pfizer poised to slash prices on prescription drugs via Medicaid, the $145 billion pharma giant might take a bit of a margin hit. However, it’ll enjoy significant relief on tariffs over the next three years. Indeed, some drugs will see an 85% reduction in price, which is pretty massive.

On the surface, it looks like a win-win deal, but I do think that other pharma firms will follow in the footsteps of Pfizer, likely to land similar deals of their own. As such, I think the latest bounce in PFE stock has a good chance of being short-lived. Either way, investors may wish to punch their ticket on a fall closer to the $24 per-share range, as more analysts have the opportunity to chime in on a deal that could have sweeping industry-wide implications.

Perhaps the biggest reason to give PFE shares a second look is the rock-bottom valuation to be had. At the time of this writing, shares trade at 13.4 times trailing price-to-earnings (P/E) or around eight times forward P/E. That’s incredibly cheap. And with one of the more swollen dividend yields on the market, income investors might be tempted to board the deep-value pharma play in light of the TrumpRX deal.

Some very notable Wall Street bulls see shares of PFE gaining more ground from here

The biggest bull on Pfier stock has to be Jefferies analyst Akash Tewari, who holds onto a $34 per-share price target. Though it’ll be interesting to get his take following the TrumpRX deal, I can’t help but think he’ll grow even more upbeat. As a part of his current thesis, he thinks Pfizer is on track to save a great deal as its operational efficiency efforts look to pay off. Additionally, investments in U.S. manufacturing are a plus as the firm steers clear of tariffs.

Even after Tuesday’s sudden rally, PFE stock still has another 33% or so in upside from current levels, and that’s not including the near-7% dividend yield. Either way, I’d look for more Wall Street analysts to step forward with more upbeat views of the fallen pharma blue-chip following one of the biggest deals for the industry all year.

While the TrumpRX deal is a major positive, it won’t magically solve all of Pfizer’s issues. The firm has been acquiring its way to greater growth, with the most recent near-$5 billion deal punching the firm’s ticket to the weight-loss drug race, which has cooled off in a big way this year. As to whether Pfizer is overpaying for entry into hot corners of pharma remains the big question. In any case, investors should be mindful of the risks in chasing high-yield value plays, especially as they get off the canvas.

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