Is Pfizer Poised to Head 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.

In its bid for AstraZeneca, Pfizer is finding out that some merger offers need to be sweet enough for everyone. On Sunday, Pfizer made what it called its “final” $119 billion offer for AstraZeneca, which is based in London. Pfizer also stated that while it wanted a deal, it was only making a soft “nonbinding” offer at this time. Pfizer said it would not start a full-fledged hostile offer for AstraZeneca. A hostile bid would have involved offering terms that AstraZeneca’s shareholders could accept without the approval of AstraZeneca’s board. Given the price Pfizer offered, such a maneuver had a real chance of success. But Pfizer did not go that route, instead leaving the fate of its offer in the hands of AstraZeneca’s board of directors.

T = Technicals on the Stock Chart Are Strong

Pfizer stock has been trending higher in the last couple of years. The stock is currently surging higher and looks poised to continue. 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

20.22%

3%

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

June Options

Steep

Average

July 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 been pleased with 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

-3.89%

12.19%

11.06%

-1.51%

5.46%

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

Conclusion

Pfizer discovers and develops medicines for people and animals around the world. The company made what it called its “final” $119 billion offer for AstraZeneca. The stock has been trending higher over the last couple of years and looks poised to continue. Over the last four quarters, earnings and revenues have been decreasing. However, investors have been pleased with recent earnings announcements. 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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