Pfizer Earnings Preview: 2 Ways to Trade PFE Stock

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Pfizer Inc. (NYSE:PFE) is scheduled to join the earnings parade ahead of the opening bell on Tuesday, and the blue-chip pharmaceutical concern is facing a wealth of negativity from options traders heading into the event.

Pfizer Earnings Preview: 2 Ways to Trade PFE StockFor the record, Wall Street expect Pfizer earnings to fall roughly 16% to 49 cents per share in the first quarter, with revenue declining 5% year-over-year to $10.7 billion.

Fundamentally, Pfizer has easily topped Wall Street’s estimates in all but one quarter during the past four years. As a result, EarningsWhisper.com reports that Pfizer’s first-quarter whisper number comes in at 52 cents per share. Still, quarterly reports aren’t the reason that PFE stock struggled through most of 2014.

In fact, it has been the rise of generic competition that has seen PFE’s revenues founder in recent years. Specifically, a stable of the company’s top-selling drugs, including Lipitor, Celebrex and Viagra have all been targeted by generic competition. That said, Pfizer has not sat on its laurels.

Wall Street will be looking for promising sales data and guidance surrounding anti-seizure drug Lyrica — Pfizer’s current top seller. Analysts are expecting Lyrica to contribute about 10% to the company’s first-quarter bottom line.

Looking further down the road, analysts will also be keeping an eye on data surrounding the newly approved cancer drug Ibrance. Ibrance was granted accelerated approval by the FDA in February, and any early sales data could be a hot topic for PFE stock.

4-24-2015 PFE
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 Turning toward sentiment on Pfizer stock, we find that the analyst community is sending mixed signals. On one hand, Thomson/First Call data reveals that PFE stock has garnered 14 “buy” ratings, compared to four “holds” and two “sells.” On the other hand, the 12-month price target for PFE currently rests at $36, just a hair’s breadth above the stock’s close at $35.36 yesterday. Pfizer’s quarterly report could break open this situation, eliciting either downgrades or price-target increases to keep the brokerage community’s expectations in line.

Options traders, on the other hand, have gone put heavy ahead of PFE’s quarterly report. Currently, the May put/call open interest ratio for Pfizer rests at 0.81, near the upper end of its annual range. What’s more, when we zoom in for a look at weekly May 1 series open interest, this ratio rises sharply to 1.34, with puts easily outnumbering calls among options set to expire at the end of next week.

Overall, weekly May 1 series options are pricing in a potential post-earnings move of about 2.5% for PFE stock. This places the upper bound at $36.37, while the lower bound lies at $34.63. While PFE has been on a tear recently, the shares are far from overbought, making a breakout to multi-year highs above $36 rather significant. Meanwhile, a post-earnings decline should find support in the $34 region. which is currently home to PFE’s 10-week moving average.

2 Trades for Pfizer Stock

Call Spread: With new revenue streams coming online to bolster against generic competition for old standby drugs, Pfizer has considerable potential going forward. This potential could be magnified by lingering pessimism in the stock’s sentiment backdrop.  As such, a bull call spread like the May $35.50/$36.50 bull call spread has considerable potential.

As last check, the this spread was offered at 27 cents, or $27 per pair of contracts. Breakeven lies at $35.77, while a maximum profit of 73 cents, or $73 per pair of contracts, is possible if PFE stock closes at or above $36.50 when these options expire.

Put Sell:  On the other hand, PFE’s ascent has slowed recently, and if the company’s doesn’t offer strong guidance the stock could see some blowback due to valuation from the brokerage community. As such, traders worried about further stagnation from PFE might consider a weekly May 1 series $34 put sell.

At last check, the weekly May 1 series $34 put was bid at 18 cents, or $18 per contract. As long as PFE stock trades above $34 through expiration next Friday, traders will keep the $18 premium. However, if PFE trades below $34 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $34 per share.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/pfizer-earnings-preview-2-ways-to-trade-pfe-stock/.

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