Pfizer Stock Is at Do-or-Die Spot Ahead of Earnings

Cheap with a high yield, but is PFE stock one to bet on?

Shares of Pfizer (NYSE:PFE) are on the cusp of a breakdown as it heads into its fourth-quarter earnings results. However, PFE stock has a chance to rebound if it can hold up near support.

What is the stock looking like ahead of its report? Let’s look at the charts for a better understanding of PFE stock.

Trading PFE Stock Ahead of Earnings

chart of PFE stock

What is the problem with Pfizer stock and why is it in a do-or-die situation? Pfizer stock is breaking below the 200-day moving average. This mark has been the last line of defense over the last 18 months when it comes to support. Admittedly, in February, March and May of 2018, PFE stock temporarily broke down below this mark. However, each time that it did, it was able to recover and move higher. It’s totally possible that that’s what will play out again. The reason that it’s do or die though, comes down to earnings.

Earnings will likely cause one of two things: Either ignite the bounce PFE stock needs to get back over its 200-day moving average or accelerate the selling pressure and solidify the breaking of this support level.

Let’s look more closely at both situations. Pfizer stock doesn’t tend to be a big mover — in either direction. But should it rally I wouldn’t expect much upside past $42.50. There it will start to run into the 21-day and 50-day moving averages, as well as a prior trend line (drawn in purple). It doesn’t help that the trend has been down since the first few days of December.

What if the quarter is ill-received and PFE stock heads lower? If that’s that the case, the $37 level should act as a level of support. Should Pfizer drop that far, it would represent a fall of roughly 7%. I don’t believe that decline — if a decline even comes to fruition — will come all at once following earnings. However, I could see a scenario where PFE is down 3% to 4% following earnings and work its way down to $37 over the next week or two.

Valuing PFE Stock

Last quarter, the company beat on earnings but missed on revenue expectations. Initially, that weighed on PFE stock price, but eventually it chopped its way higher. Perhaps a similar reaction will occur again, considering that Pfizer is already more than 14% off highs it made less than two months ago.

For the quarter, analysts expect Pfizer to earn 64 cents per share on $13.94 billion in revenue. On in-line results, that will represent year-over-year growth of 3.2% and 1.7%, respectively. For the year, expectations call for earnings of $3 per share on $53.55 billion in sales. Should that come to fruition, the year-over-year growth for 2018 will outpace Q4, at 13.2% and 1.9%, respectively.

Investors will be tuned into the conference call, looking for management’s indication for fiscal 2019. Current estimates call for earnings and revenue growth of 2% and 1.5%, respectively.

It’s no secret that PFE stock is a low-growth name. However, it does have its positives. For instance, shares trade at about 13 times this year’s earnings. Further, the stock yields just over 3.5%. Both of those are pretty attractive, although one could certainly argue that 13 times earnings is still too much for ~3% growth and a 3.5% dividend yield.

Instead, some may feel more comfortable in a name like Celgene (NASDAQ:CELG), a position that will turn into $50 in cash plus a stake in Bristol-Myers Squibb (NYSE:BMY) provided the latter’s $74 billion acquisition of the former goes through. Worth mentioning is that BMY has a lower valuation than PFE, similar dividend yield at 3.35% and much better growth.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long CELG. 

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