Pfizer Inc.: Why PFE Stock Isn’t as Wild as It Seems

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To say Pfizer Inc. (PFE) has been tough to handicap of late would be an understatement. The stock’s been all over the map for the past couple of years, pushed and pulled by a complex mix of patent expirations, an acquisition melee and the launch of a couple of drugs.

Pfizer Inc.: Why PFE Stock Isn't as Wild as It SeemsSwings of 20% in just a matter of weeks — in both directions — have become the norm for Pfizer stock. The thing is: That’s unlikely to change in the near future.

With that as the backdrop, Tuesday morning’s Q1 earnings announcement poses a boatload of risk as well as reward to current and would-be owners. Here’s a quick primer for anyone planning a trade before or after the event.

PFE Earnings Preview

As of the most recent looks, analysts are collectively expecting Pfizer to report a profit of 55 cents per share on sales of $12 billion for the quarter ending in March. Both are better than the year-ago bottom line of 51 cents per share of PFE, and top line of $10.86 billion. It’s also worth noting Pfizer has topped earnings estimates in each of its past 11 quarters.

That doesn’t necessarily mean the company’s top and bottom lines have grown in each of the past several quarters though … a fact that shareholders were more than willing to point out at last week’s annual shareholder meeting.

Some of the critiques were fair, and others were not. In the “not” category is the accusation that PFE shares haven’t gone anywhere over the years; Pfizer stock has outperformed its key benchmark comparison for the past five years.

In light of the fact that PFE shares are still down 10% from last August’s high though — even with the 10% bounce since the end of March — the point is still well taken.

That is, Pfizer has failed to impress shareholders in a while, with the biggest rally of late born out of the fact that it couldn’t consummate the planned merger with Allergan plc Ordinary Shares (AGN). The company could really use a win in Tuesday morning’s earnings announcement, even if that victory just comes in the form of bullish guidance.

3 Things for PFE Owners to Mull

While companies as large as Pfizer have a variety of matters working for and against them at any point in time, three of these forces are doing the bulk of the driving of PFE shares right now. In no certain order …

1. Future Acquisitions

Calling a spade a spade, although Pfizer stock rallied on news that it wasn’t going to be able to acquire Allergan — and subsequently reduce its tax bill — the fact of the matter is the new rules that prevented that pairing have also preemptively quelled any such future deals that may have been beneficial … even above and beyond a smaller tax liability.

It raises the question: What can pharmaceutical giant Pfizer do now to drive growth?

There are still some domestic acquisition targets worth a look. Rumor is that Pfizer could be considering a purchase of Medivation Inc (MDVN). There aren’t any domestic possibilities that seem to really stoke shareholders though.

2. Future Spinoffs

The market is doing more of the talking on this front than the company has thus far, but Pfizer is still talking about the possibility of a spinoff of its established drug lines from its riskier, developmental portfolio. It’s a step in the other direction from a merger with another drug giant, but even before the Allergan deal went belly up, this possibility was on the table as a means of increasing shareholder value.

At this point, such a maneuver would likely improve the stock’s perceived worth.

3. Ibrance, Enbrel and Lyrica

As much as any pharmaceutical company hates being reliant on just a handful of key drugs to make or break quarterly results, it’s a reality for Pfizer nonetheless. PFE shareholders will want to keep close tabs on three drugs in particular, one of which is growing and two of which are shrinking.

One of the key bright spots in Pfizer’s portfolio is Ibrance. This relatively new breast cancer treatment is off to a great start, generating $315 million worth of sales in the fourth quarter of last year, indicating sales-acceleration. The company is also developing Ibrance as a treatment for other indications, opening the door to more revenue opportunities.

As for epilepsy drug Lyrica and anti-inflammatory therapy Enbrel, both are multi-billion franchises for Pfizer, but both are also expected to post sizable declines in year-over-year sales.

Bottom Line for Pfizer Stock

As is the case with a handful of the market’s biggest and most-watched stocks, PFE shares aren’t priced in the near-term based on the company’s revenue and earnings growth. In the short-term, results compared to estimates and year-ago levels do the bulk of the driving.

In the long run though, Pfizer stock is still driven by the company’s absolute performance, which has been respectable, even as patent cliff problems provided a still headwind. It remains one of the market’s more reliable companies, with or without acquisitions. A bearish response to Tuesday’s news might actually be a good long-term buying opportunity.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/pfe-pfizer-stock-wild/.

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