Does Pfizer Have a Bright Future?

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.

Pfizer hinted it could raise its proposed $106 billion offer if AstraZeneca (NYSE:AZN) would engage in talks. In response, AstraZeneca said it would have to consider a compelling offer but accused Pfizer of an “opportunistic” proposal and a ploy to cut taxes that risked its reputation. Pascal Soriot, the French-born boss of AstraZeneca, came out fighting after Pfizer CEO Ian Read made clear the New York-based group would not rule out a hostile bid if Britain’s second-biggest drug maker did not enter merger talks. Having warned that AstraZeneca could wither without its financial muscle, Pfizer expressed its frustration at being rebuffed, and said on Tuesday that working with the U.K. company’s board could help deliver “optimal deal terms” that AstraZeneca could recommend to its shareholders.

T = Technicals on the Stock Chart Are Mixed

Pfizer stock has been trending higher in the last couple of years. However, the stock is currently trading sideways and may need time to stabilize before heading higher. 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 signals neutral to bearish price action in the near-term.

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

22.10%

23%

20%

What does this mean? This means that investors or traders are buying a minimal 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 Tuesday, 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 minimal 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

-4.64%

11.59%

9.99%

-2.01%

4.73%

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 hinted it could raise its proposed $106 billion offer if AstraZeneca would only engage in talks. The stock has been trending higher over the last couple of years but 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.

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