Editor's Note: This analysis was originally published as a stock note by Morningstar Equity Research.

Key Morningstar Metrics for Pfizer

• Fair Value Estimate: USD 38.00
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

Pfizer PFE faces patent expirations amounting to more than one quarter of 2024 revenue by 2028, and the 2023 acquisition of oncology-focused biotech Seagen boosted the firm’s invested capital base, lowering adjusted returns on invested capital to 7.3% in 2024.

Why it matters: We estimate Pfizer’s cost of capital at 7.1%, and our projected high-single-digit ROICs do not provide much of a buffer against potential emerging headwinds to profitability over the next decade.

• Blockbuster products like cancer drug Ibrance and cardiovascular drugs Eliquis and Vyndaqel will likely face generic competition in 2027-28, adding pressure on Pfizer’s pipeline.
• We think the fate of Seagen’s pipeline programs and the relative positioning of its antibody-drug conjugate technology will be key in determining Pfizer’s pipeline productivity.

The bottom line: We’re lowering our fair value estimate for Pfizer to USD 38 per share from USD 42 after reducing the firm’s moat rating from wide to narrow, accounting for the thin margin of our ROIC forecast over its cost of capital.

• We also factored pressure from the Donald Trump administration into our tax rate forecast (rising to 19% in the long run with increased US manufacturing) and moat rating. While we see most favored nation pricing as unlikely, Pfizer has less of a ROIC buffer than its peers to handle pressure to US profits.
• Our $7.7 billion 2030 forecast for revenue from the Seagen portfolio is still below management’s $10 billion goal, although we’re carefully watching Padcev’s expansion into new indications and advancement of the phase 3 pipeline.

Big picture: We think Pfizer shares still look significantly undervalued, as despite flat growth prospects, its 7% dividend yield and the steadiness of its diversified portfolio are compelling.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.