Pfizer stock (NYSE: PFE) is currently seen as a better investment option compared to Merck stock (NYSE: MRK) due to its attractive valuation. While MRK trades at a higher valuation multiple of 5.6x revenues, PFE’s valuation sits at 2.7x, making it a more appealing choice for investors. The analysis suggests that this valuation gap is likely to narrow in favor of Pfizer in the near future. Factors such as historical revenue growth, stock returns, and overall valuation are taken into consideration to determine which stock is a better bet for potential investors.
Over the past three years, PFE stock has declined by 15%, while MRK stock has seen strong gains of 65%. However, the performance of both stocks has been inconsistent, with PFE underperforming the S&P 500 in 2023, while MRK saw declines in both 2021 and 2023. This inconsistency in performance highlights the challenges in consistently outperforming the market, even for established companies in the Health Care sector. The Trefis High Quality Portfolio, on the other hand, has consistently outperformed the S&P 500 each year, providing better returns with less risk.
In terms of revenue growth, Merck has shown stronger growth over the last twelve months, primarily due to a decline in Pfizer’s sales for its Covid-19 products. However, looking at the last three years, Pfizer has outperformed Merck with a higher average revenue growth rate. Moving forward, Merck is expected to see continued sales growth driven by its Keytruda drug, while Pfizer is likely to see slower growth due to increased competition for its products. The recent Seagen acquisition by Pfizer is expected to boost its revenue in the coming years.
Pfizer is currently more profitable compared to Merck, with a slightly higher operating margin over the last twelve-month period. However, Merck has a better debt and cash position, with lower debt levels and higher cash reserves. Looking at prospects and using P/S as a base, Pfizer is expected to offer better returns in the next three years, with an expected return of 19% compared to 2% for Merck. The recent fall in valuation multiple for Pfizer makes it a more attractive pick, especially with the potential sales contribution from the Seagen acquisition expected to exceed $10 billion by 2030.
Overall, the analysis suggests that Pfizer stock is a better investment choice compared to Merck due to its lower valuation, higher profitability, and potential for better returns in the next three years. While both companies face challenges in the uncertain economic environment, Pfizer is expected to outperform in the coming years. Investors are encouraged to conduct further research and analysis to determine the best investment options based on their financial goals and risk tolerance.
