Why Pfizer stock popped on Monday

Pfizer (PFE 2.89%) the stock was up 3.1% by 11:20 a.m. ET Monday morning in response to a Wall Street Journal article over the weekend reporting a billion dollar investment in the company by activist investor Starboard Value.

With Pfizer shares down 50% from the record prices its shares commanded at the height of the pandemic, Starboard is offering to help Pfizer turn its business around.

How Pfizer got into a pickle

That diary explains, Pfizer had bet big on vaccines to protect people from COVID, but as the pandemic waned, so did interest in (and sales of) its mRNA vaccines. The company was also slow out of the gate with the GLP-1 weight loss drugs that fueled rivals’ business. Novo Nordisk and Eli Lilly. Meanwhile, Pfizer spent its pandemic earnings like a drunken sailor, splashing $5.4 billion to buy Global blood therapy$6.7 billion to buy Arena Pharmaceuticals, $11.6 billion for Biohaven Pharmaceuticaland $43 billion for Seagen and its anti-cancer drugs.

But despite all the investment, Pfizer’s sales have fallen from more than $100 billion in 2022 to just $55 billion in the past 12 months.

Is Pfizer stock a buy?

WSJ says Starboard has approached several former Pfizer executives — former CEO Ian Read and former CFO Frank D’Amelio — to help with a turnaround. But Pfizer has already announced it will cut costs by $3.5 billion in 2024 and will continue to cut in the years to come, so it’s not entirely clear what additional measures Starboard will recommend.

Going back to the basics might be a good first start. Under Read’s leadership, for example, Pfizer regularly generated positive free cash flow in the range of $13 billion to $14 billion annually. And even before the pandemic, the company was still generating $10 billion in positive free cash flow, or twice its current level. Just getting back to $10 billion would push the stock’s price-to-free cash flow ratio down into the mid-teens — a level that could start to attract value investors again.

Fingers crossed.