Can Pfizer Continue to Outperform?

With shares of Pfizer (NYSE:PFE) trading around $32, 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’s rival Novartis is racing the former to develop a promising new type of breast cancer drug, which analysts believe could bring billions of dollars in yearly sales. The Swiss drug maker, which has prior to this kept its research program undercover, revealed Friday that its experimental pill LEE011 is primed to enter final-stage Phase III clinical trials in December. Pfizer’s rival drug palbociclib is already in Phase III testing, but Novartis’ rapid progress means the group could face competition rather sooner than anticipated. Both drugs are pills, and work by blocking two enzymes called cyclin dependent kinases 4 and 6.

Pfizer’s rival Novartis is racing the former to develop a promising new type of breast cancer drug, which analysts believe could bring billions of dollars in yearly sales. The Swiss drug maker, which has prior to this kept its research program undercover, revealed Friday that its experimental pill LEE011 is primed to enter final-stage Phase III clinical trials in December. Pfizer’s rival drug palbociclib is already in Phase III testing, but Novartis’ rapid progress means the group could face competition rather sooner than anticipated. Both drugs are pills, and work by blocking two enzymes called cyclin dependent kinases 4 and 6.

T = Technicals on the Stock Chart Are Strong

Pfizer stock has been moving higher in the last couple of years. The stock is currently rising and looks set to continue this path. 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

15.59%

36%

34%

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

December Options

Flat

Average

January 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 minimal 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-9.30%

360.50%

58.33%

358.00%

Revenue Growth (Y-O-Y)

-2.39%

-7.12%

-9.30%

-6.65%

Earnings Reaction

1.67%

0.44%

-4.46%

3.20%

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

29.23%

20.64%

25.64%

11.46%

22.74%

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’s rival Novartis is racing the former to develop a promising new type of breast cancer drug. The stock has been trending higher in recent years and is currently rising looking set to continue. Over the last four quarters, earnings have been increasing while revenues have been decreasing, which has produced conflicting feelings among investors about recent earnings announcements. Relative to its peers and sector, Pfizer has been an excellent performance leader year-to-date. Look  for Pfizer to OUTPERFORM.

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