Pfizer, Inc.

PFE Details

Pfizer and BioNTech Announce an Agreement with the U.S. Government: Pfizer, Inc. (NYSE: PFE) is a research-based, global biopharmaceutical company that applies science and global resources to improve lives through the discovery, development, manufacture, and distribution of healthcare products, including innovative medicines and vaccines. As on 22 July 2020, the market capitalization of the company stood at ~$214.19 billion. PFE and BioNTech SE (NASDAQ: BNTX) have recently announced the execution of an agreement with the U.S. Department of Health and Human Services and the Department of Defense to deliver 300 million doses of mRNA-based vaccine for COVID-19 in 2021. The U.S. government will pay the companies $1.95 billion upon the receipt of the first 100 million doses, following FDA authorization or approval. Americans will have free access to the vaccine.

Syneos Health Signs New Service Agreement with Pfizer: The company has announced that it has signed a new three-year agreement with Syneos Health for global product development solutions to support its portfolio. Syneos Health will also deliver a broad range of customized capabilities to meet the goals of PFE across its portfolio.

Financial Highlights: During the quarter ended 29 March 2020, total revenue of the company witnessed a slight decline over the previous period and stood at $12.02 million. In the same time span, gross profit of the company was $9.65 million. The company also retains a healthy liquidity position with a cash balance of $2.15 million at the end of the period.

Quarterly Performance (Source: Company Reports)

Outlook: The addition of the vaccine from Pfizer and BioNTech is increasing the odds of an effective vaccine by the end of this year. PFE is on track to begin an anticipated Phase 2b/3 safety and efficacy trial and may manufacture ~100 million doses by the end of 2020 and over 1.3 billion doses by the end of 2021. The company expects to release Q2 2020 results on 28^th July 2020.

Key Risks: Investment in the company is subject to certain risks and uncertainties. These include the uncertainties inherent in research and development, the ability to meet anticipated clinical endpoints, commencement and/or completion dates for clinical trials. The performance of the company is also dependent on the success of the clinical trials.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The Board has declared a dividend of 38 cents for the third quarter which is payable on 01 September 2020. The stock is inclined towards its 52-week high of $43.23 and retains the potential for further growth. The stock gave a return of 6.37% in the past three months and a return of 16.46% in the last one month. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target upside of high single-digit (in percentage terms). Considering the current trading levels, positive long-term outlook and agreement with the U.S. Government for mRNA-based Vaccine, we recommend a ‘Hold’ rating on the stock at the closing price of $38.56, up by 5.1% on 22 July 2020, owing to its recent agreement with the US government.

PFE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Peloton Interactive, Inc.

PTON Details

New Trends Driving Growth: Peloton Interactive, Inc. (NASDAQ: PTON) is one of the largest interactive fitness platforms, which pioneers technology-enabled fitness, and the streaming of immersive, instructor-led boutique classes. As on 22 July 2020, the market capitalization of the company stood at ~$18.16 billion. Work from realities has created a meaningful tailwind for PTON and a broader ongoing consumer shift towards home fitness experiences. During the March quarter, the company connected over 886,000 fitness subscribers, representing year-over-year growth of 94%, bringing the member account to over 2.6 million. The company had a subscriber basis of 17.7 average monthly workouts per Connected Fitness Subscriber compared to 13.9 workouts in the same period last year.

Quarterly Highlights: The company has extended the digital subscription free trial period from 30 days to 90 days resulting in over 1.1 million downloads of Peloton Digital. During the third quarter ended 31 March 2020, revenue of the company went up by 66% on the pcp and stood at $524.6 million. With decent revenue flow, the company achieved its first adjusted EBITDA positive quarter with an adjusted EBITDA margin of 4.5%.

Operational and Financial Highlights (Source: Company Reports)

Guidance: The company has raised guidance for FY20 and expects Connected Fitness Subscribers between 1.04 million to 1.05 million, reflecting a growth of 104% at the midpoint. The company also expects to generate $1.72 billion to $1.74 billion in total revenue and adjusted EBITDA in the range of $30 million to $40 million. The company expects to release its Q4FY20 results on 4^th August 2020.

Key Risks: Investment in the company is subject to various risks including the ability of the company to attract and retain subscribers; its limited operating history; ability of the company to anticipate and satisfy consumer preferences; the effects of a highly competitive market and inaccurate forecast of consumer demand.

Stock Recommendation: The company retains a decent liquidity position with a flexibility to react to the current environment. PTON had a cash balance of $1.4 billion as on 31^st March 2020, allowing it to make significant investments in its platform. However, the unexpected sharp increase in sales has created an imbalance of supply and demand in many geographies, causing elongated order-to-delivery windows for its customers. The stock gave a return of 105.71% in the past three months and a return of 20.95% in the last one month. The stock is inclined towards its 52-week high of $69.73 and retains limited potential for further growth. On a TTM basis, the stock of PTON is trading at an EV/Sales multiple of 9.4x, higher than the industry median (Consumer cyclicals) of 1.2x and thus seems overvalued. Considering the current trading levels, sharp movement in the share price in the last three months, and risks regarding the ability of the company to retain subscribers, we suggest investors to wait for better entry levels and give an “Expensive” rating on the stock at the closing price of $64.14, up by 2% on 22 July 2020.

PTON Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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