Can Pfizer Discover Higher Prices?

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 include human and animal biologic and small molecule medicines and vaccines, nutritional products, consumer healthcare products, and products for the prevention and treatment of diseases in livestock and companion animals. Illness and disease is something that plagues people and animals around the world. Pfizer is in constant development, attempting to improve its products in order to help people and animals struggling around the world. So long as health is a main concern for people and animals, Pfizer stands to see significant profits.

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T = Technicals on the Stock Chart are Strong

Pfizer stock has been on a strong path towards higher prices in recent years. The stock is now trading at price levels not seen since the mid-2000s and does not show significant signs of slowing. 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 slightly above its rising key averages which signal neutral to bullish 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

22.97%

66%

63%

What does this mean? This means that investors or traders are buying a significant 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

Flat

Average

August Options

Flat

Average

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

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

58.33%

358%

-10.42%

30.30%

Revenue Growth (Y-O-Y)

-12.37%

-6.65%

-15.85%

-8.66%

Earnings Reaction

-4.46%

3.20%

-1.28%

1.39%

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

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P = Excellent Relative Performance Versus Peers and Sector

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

Pfizer

Merck

Sanofi

Novartis

Sector

Year-to-Date Return

16.03%

16.19%

12.68%

13.60%

14.35%

Pfizer has been a relative performance leader, year-to-date.

Conclusion

Pfizer provides discovers and develops valuable pharmaceutical products for consumers and animals all around the world. The stock has been on a powerful surge higher and is now trading at price levels not seen since the mid-2000s. Over the last four quarters, investors have had mixed feelings about the company, as earnings have improved and revenues have been decreasing. Relative to its peers and sector, Pfizer has been a year-to-date performance leader. Look for Pfizer to continue to OUTPERFORM.

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