Will Recent Headlines Hurt Pfizer Stock?

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 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.

Pfizer on Monday said one of its experimental drugs had failed to meet its goals in two late-stage studies among patients who had received prior treatment for advanced non-small cell lung cancer, the most common form of the disease. Although Pfizer continues to test the drug, called dacomitinib, in another Phase III study, hopes for its success have now largely faded, according to ISI Group analyst Mark Schoenebaum. ”We believe consensus expectations (for the drug) will be close to zero given today’s readout” of unsuccessful trial results, Schoenebaum said in a research note.

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 pulling back and may need time to stabilize. 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 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

22.24%

96%

94%

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 today, there is an 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)

-9.30%

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 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

-2.74%

6.55%

-2.13%

-8.33%

-2.66%

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 said one of its experimental drugs had failed to meet its goals in two late-stage studies. The stock has been trending higher in recent years, but is currently pulling back. Over the last four quarters, earnings have been increasing while revenues have been decreasing, which has produced mixed feelings among investors about recent earnings announcements. Relative to its peers and sector, Pfizer has been an average year-to-date performer. WAIT AND SEE what Pfizer does next.

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.

More From Wall St. Cheat Sheet:

More from The Cheat Sheet