Will An Acquisition Boost Pfizer?

With shares of Pfizer (NYSE:PFE) trading around $27, 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 and 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. Today, Onyx Pharmaceuticals (NASDAQ:ONXX) is up over 50 percent after the company refused a $120 per share bid from Amgen (NASDAQ:AMGN), because they believe it undervalued the company significantly and they would explore other possibilities. Pfizer as well as a few others are all rumored to be interested in the company. As long as health is a main concern for people and animals, Pfizer stands to see significant profits.

T = Technicals on the Stock Chart are Mixed

Pfizer stock has been part of a strong move higher over the last several years. The stock has recently pulled-back and looks to be forming a base, so, it may need time before it gets going once again. 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 key averages which signal 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

23.70%

56%

55%

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

Put IV Skew

Call IV Skew

July Options

Average

Average

August Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, neutral over the next two months. To summarize, investors are buying a 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

58.33%

358.00%

-10.42%

30.30%

Revenue Growth (Y-O-Y)

-12.37%

-6.65%

-15.85%

-8.66%

Earnings Reaction

-4.46%

3.20%

-1.28%

1.39%

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

P = Average 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

10.75%

13.83%

12.26%

8.44%

11.46%

Pfizer has been an average relative performer, year-to-date.

Conclusion

Pfizer discovers and develops medicines for people and animals around the world. The company is rumored to be a potential buyer of Onyx Pharmaceuticals which can potentially help the bottom-line. The stock has witnessed a powerful move higher but is now consolidating so it may need a little more time. Over the last four quarters, investors in the company have had mixed feelings since earnings have only improved a bit while revenues have been declining. Relative to its peers and sector, Pfizer has been an average year-to-date performer. WAIT AND SEE what Pfizer does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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