Is Pfizer a Safe Investment?

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.

France-based genome engineering specialist Cellectis saw its shares rocket nearly 50 percent to 9.26 euros, after the company announced a collaboration with U.S. pharma giant Pfizer, valuing the company at around 195 million euros ($264 million.) Pfizer and Cellectis have entered into a global strategic agreement to develop Chimeric Antigen Receptor T-cell (CAR-T) immunotherapies in the field of oncology directed at select targets. Cellectis’ CAR-T platform technology provides a proprietary, allogeneic approach (utilizing engineered T-cells from a single donor for use in multiple patients) to developing CAR-T therapies that is distinct from other autologous approaches (engineering a patient’s own T-cells to target tumor cells).

Cellectis will receive an upfront payment of $80 million, as well as funding for R&D costs associated with Pfizer-selected targets and the four Cellectis-selected targets within the collaboration. Cellectis is also eligible to receive development, regulatory and commercial milestone payments of up to $185 million per Pfizer product. Additionally, Cellectis will receive tiered royalties on net sales of any products that are commercialized by Pfizer. Under the terms of the agreement, Pfizer has exclusive rights to pursue development and commercialization of CAR-T therapies, in the field of oncology, directed at a total of 15 targets selected by Pfizer. Albeit unlikely, if all 15 worked, the total payments could reach $2.9 billion. Both companies will work together on preclinical research and Pfizer will be responsible for the development and potential commercialization of any CAR-T therapies for the Pfizer-selected targets.

T = Technicals on the Stock Chart Are Weak

Pfizer stock has been pulling back in recent times. 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 below its rising key averages which signal neutral to bearish 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

15.65%

13%

10%

What does this mean? This means that investors or traders are buying a small 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

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bearish 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 Decreasing 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?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-5.26%

-54.41%

-9.3%

360.5%

Revenue Growth (Y-O-Y)

-15.93%

-25.58%

-2.39%

-7.12%

Earnings Reaction

-2.56%

2.56%

1.67%

0.44%

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

P = Weak 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

-4.10%

15.89%

12.01%

-0.04%

6.94%

Pfizer has been a poor relative performer, year-to-date.

Conclusion

Pfizer discovers and develops medicines for people and animals around the world. The company announced a collaboration with Cellectis. The stock has been pulling back in recent times and is currently trading sideways. Over the last four quarters, earnings and revenues have been decreasing, which has produced mixed feelings among investors. Relative to its peers and sector, Pfizer has been a poor performer year-to-date. WAIT AND SEE what Pfizer does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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