Can Pfizer Break Higher?

With shares of Pfizer (NYSE:PFE) trading around $29, is PFE an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Pfizer is a biopharmaceutical company that discovers, develops, manufactures, and sells medicines for people and animals worldwide. The company manages its operations through five segments: Primary Care, Specialty Care and Oncology, Established Products and Emerging Markets, Animal Health and Consumer Healthcare, and Nutrition. Pfizer’s main products are human and animal biologic and small molecule medicines, as well as vaccines, nutritional products, consumer healthcare products, and products for the prevention and treatment of diseases in livestock and companion animals.

Patients who prefer brand-name cholesterol drug Lipitor to an inexpensive generic version will find it more affordable, thanks to a new discount offer from drugmaker Pfizer. They’ll be able to get Lipitor, the highest selling prescription medicine in history, for $30 or less per month — not much more than a generic — under Pfizer’s Lipitor Choice program. Patients who get a discount card at www.lipitor.com can receive a month’s supply for $30 if they have no insurance, are covered under Medicare or Affordable Care Act exchange plans, or have commercial insurance with a copayment of more than $130. If they have commercial insurance with a co-pay of $130 or less, it will cost them $4. Pfizer will pay the pharmacy any difference. The program is New York-based Pfizer’s latest effort to hang onto revenue from Lipitor, which generated nearly $13 billion in annual sales at its 2006 peak. Its patent expired in November 2011 in the U.S. and soon after in other major markets, allowing cheap copycat versions to flood pharmacies. “We are very keen to see how patients and physicians respond,” Sean Rapson, head of innovation for Pfizer’s established products business, told The Associated Press. “If there’s great interest, we would consider trying it with (our) other medicines.”

T = Technicals on the Stock Chart Are Mixed

Pfizer stock has been pulling back in recent times. The stock is currently trading sideways and may need time to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Pfizer is trading below its rising key averages which signal neutral to bearish price action in the near-term.

PFE

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Pfizer options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Pfizer options

17.42%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on PFIZER’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for PFIZER look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-5.26%

-54.41%

-9.3%

360.5%

Revenue Growth (Y-O-Y)

-15.93%

-25.58%

-2.39%

-7.12%

Earnings Reaction

-2.56%

2.56%

1.67%

0.44%

Pfizer has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Pfizer’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Pfizer stock done relative to its peers, Merck (NYSE:MRK), Novartis (NYSE:NVS), Sanofi (NYSE:SNY), and sector?

Pfizer

Merck

Novartis

Sanofi

Sector

Year-to-Date Return

-2.81%

15.22%

10.38%

-1.38%

6.35%

Pfizer has been a poor relative performer, year-to-date.

Conclusion

Pfizer discovers and develops medicines for people and animals around the world. Patients who prefer brand-name cholesterol drug Lipitor to an inexpensive generic version will find it more affordable, thanks to a new discount offer from Pfizer. The stock has been pulling back in recent times and is currently trading sideways. Over the last four quarters, earnings and revenues have been decreasing, which has produced conflicting feelings among investors. Relative to its peers and sector, Pfizer has been a poor performer year-to-date. WAIT AND SEE what Pfizer does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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