Is Pfizer Poised to Head 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 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.

China’s drug watchdog has suspended imports of one medication from the pharmaceutical giant, saying that the company was late in filing its application; the drug in question is an anti-fungal drug used in the treatment of AIDS called Diflucan. The suspension is just one of several similar recent incidents indicative of China’s increasing scrutiny of the pharmaceutical industry, according to The Wall Street Journal. On Tuesday the Chinese regulators said they recently inspected a Pfizer factory in France and found that the company failed to submit a supplementary application for Diflucan on time. Pfizer responded in a statement on its Chinese language website, saying it is complying with Chinese authorities and taking necessary steps to resolve the problem, the Journal reports. Pfizer also said the reason for the suspension had nothing to do with issues of the drug’s safety or quality, but was merely an issue of proper documentation per Chinese law.

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 between its rising key averages, which signals neutral 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

18.83%

70%

68%

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.

Put IV Skew

Call IV Skew

February Options

Average

Average

March Options

Average

Average

As of Thursday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral 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)

-9.3%

360.5%

58.33%

358%

Revenue Growth (Y-O-Y)

-2.39%

-7.12%

-9.3%

-6.65%

Earnings Reaction

1.67%

0.44%

-4.46%

3.2%

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), and  Sanofi (NYSE:SNY) — and sector?

Pfizer

Merck

Novartis

Sanofi

Sector

Year-to-Date Return

-0.52%

-0.68%

-1.98%

-2.33%

-2.37%

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

Conclusion

Pfizer discovers and develops medicines for people and animals around the world. China’s drug watchdog has suspended imports of one medication from the company. The stock has been trending higher in recent years but is currently trading sideways. 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 in the year to date. Look  for Pfizer to OUTPERFORM.

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