Which Pharma Stock Is the Better Bargain Buy: Pfizer or Eli Lilly?

With valuations growing across the stock market and the biopharma sector, it's only natural for value-sensitive investors to be looking for bargains all the more intently. On average, the well-established leaders of the pharma industry, like Pfizer (NYSE: PFE) and Eli Lilly, (NYSE: LLY) aren't the first place to find an undervalued gem.

Still, that doesn't mean those two are equal in terms of the bang investors might get for their buck. So let's evaluate both of these players to determine which one is the better bargain, and why.

Pfizer's valuation looks like it's near rock bottom

It's easy to spin a narrative about Pfizer being in shambles compared to its former glory.

Its trailing-12-month operating income is a mere $1.3 billion, down by a shocking 94% from just three years ago. The most obvious reason for the decline is the company's coronavirus vaccine and coronavirus antiviral revenue collapsing sharply, amid very underwhelming sales of product launches that management was counting on to drive growth, like its respiratory syncytial virus (RSV) vaccine.

Presently, Pfizer's enterprise value-to-revenue (EV/R) ratio is 4.1, and its price-to-book (P/B) multiple is 1.9. In short, those two metrics suggest that investors are taking a rather pessimistic view about the future value of the company's assets and shares in light of the share price and revenue it has today, and the debt it's carrying. Let's unpack this a little bit more to see why that might be the case, and whether it's likely to be an accurate assessment or not.

On average, Wall Street analysts are estimating that Pfizer's recent instances of unprofitability are, in the long term, going to be blips, with the consensus calling for earnings per share (EPS) growth of around 9.6% annually. But they also see this year as well as the next couple of years being doldrums, with relatively weak growth.

Pfizer probably has some operational inefficiencies that could be ironed out; an activist investor group called Starboard Value took a stake in Pfizer worth $1 billion in early October. Management is already pursuing cost cuts that could reduce annual expenses by around $4 billion by the end of 2024.

Furthermore, this company is far from being rudderless. Its long-term strategy calls for a combination of new research and development (R&D), and business development activity to bolster its top line dramatically between now and 2030 by focusing on segments like cancer drugs. Recent acquisitions of major oncology biotechs like Seagen and smaller collaboration deals will serve those goals efficiently, though not immediately.