Does Pfizer Support a Surge Higher?

With shares of Pfizer (NYSE:PFE) trading around $30, 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, as well as 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. On Tuesday morning, Pfizer reported quarterly earnings. Profit was boosted to $14.1 billion by a spin-off of the company’s animal division Zoetis, and a patent settlement Pfizer won against Teva (NYSE:TEVA) and Sun Pharmaceuticals over the acid-reflux drug Protonix. Earnings per share of 56 cents beat analyst expectations, but revenue fell short of estimates at $12.97 billion.

T = Technicals on the Stock Chart are Strong

Pfizer stock been consolidating over the last several months. The stock is now trading near the top-end of a range where it may need to spend some time. 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 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

17.87%

0%

0%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is 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 very small 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 what that means for Pfizer’s stock.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, the last four quarterly earnings announcement reactions can 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-10.11%

58.33%

358.00%

-10.42%

Revenue Growth (Y-O-Y)

-13.88%

-12.37%

-6.65%

-15.85%

Earnings Reaction

0.98%*

-4.46%

3.20%

-1.28%

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

* As of this writing

P = Excellent 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

19.14%

18.20%

12.32%

12.33%

14.52%

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

Conclusion

Pfizer discovers and develops medicines for people and animals around the world. The company recently reported earnings that generally pleased investors, and the stock is now trading near the top end of a range that has lasted for most of the year. Over the last four quarters, earnings have been mixed, while revenue figures have been declining. Relative to its peers and sector, Pfizer ahs been a year-to-date performance leader. Look for Pfizer to OUTPERFORM.

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