Will Pfizer Continue This Bullish Run?

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 research-based, global biopharmaceutical company. The company manages its operations through five segments: Primary Care; Specialty Care and Oncology; Established Products and Emerging Markets; Animal Health, Consumer Healthcare, and Nutrition. Pfizer is a bellwether that provides trusted healthcare products to consumers and businesses around the world. As healthcare concerns become more important, companies like Pfizer stand to see significant profits.

T = Technicals on the Stock Chart are Strong

Pfizer broke an extended downtrend that spanned the highs in 200o to early 2011. Since breaking higher, the stock has not slowed down and continue to see rising prices. 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 well above its rising key averages which signal bullish price action in the near-term.

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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

19.53%

93%

87%

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

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Put IV Skew

Call IV Skew

May Options

Flat

Average

June 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?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

366.67%

-10.42%

30.30%

-14.29%

Revenue Growth (Y-O-Y)

-7.09%

-15.83%

-8.62%

-6.67%

Earnings Reaction

3.2%

-1.28%

1.39%

-0.52%

Pfizer has seen mixed earnings growth and decreasing revenue growth over the last four quarters. From these figures, the markets have been mixed about Pfizer’s last four earnings announcements.

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

12.78%

10.23%

12.02%

7.45%

10.77%

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

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Conclusion

Pfizer provides products that may deemed as essential for many consumers and businesses across the globe. The stock has been good to investors as it has seen a great run after breaking a multi-year-downtrend. However, earnings and revenue, over the last four quarters, has instilled a little confusion in investors. This has not stopped the stock from being a performance leader relative to its peers and sector. Look for Pfizer to continue to OUTPERFORM.

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