With Pfizer Inc. (NYSE:PFE) stock slightly down year-to-date and gearing up to report their second-quarter earnings results on Tuesday investors are keeping their fingers crossed and hoping for a nice surprise amid a challenging market environment for American drugmakers. With any luck it will put Pfizer stock back on track.
The consensus among analysts isn’t exactly what I would call super-bullish; indeed, Pfizer stock has only earned a $47 analyst price objective (representing a 9% upside) along with a “moderate buy” average rating.
Moreover, the entire large-cap pharmaceutical industry is struggling this year: the S&P 500 is up a healthy 18% or so, while pharma stocks are down 1% on average year-to-date. Is there any reason, then, to hold one’s shares through the upcoming Pfizer earnings announcement?
Setting the Bar Low
For the quarter ending June 2019, practically everyone is fully expecting a year-over-year decline in both earnings and revenues, resulting in a decline in PFE stock. In particular, analysts are expecting Pfizer to report EPS of $0.77 (down 4.9% year-over-year) as well as $13.42 billion in revenues (a decline of 0.3% year-over-year).
That might sound like bad news, but as a staunch contrarian investor I tend to want to zag when the market zigs; always remember that the crowd is generally wrong. When everybody “knows” that PFE earnings will disappoint, that’s setting the company up for a nice relief rally if the actual numbers are less terrible than anticipated.
Besides, if you believe in the efficient markets theory, then you understand that all known problems with a company are already priced into the shares.
In the case of the Pfizer stock price, I expect it to wobble like it always does around earnings announcement time, followed by a consolidation and perhaps even some upside as investors come to their senses and realize that the world isn’t ending for this company or the broader pharmaceutical industry.
You Might Regret Selling Your PFE Stock
Looking through past earnings results and the subsequent price action of Pfizer stock, it’s evident that this is a true “safety stock” of the first order: a dependable Dow Jones component with a $237 billion market cap that typically moves less than 5% in one direction or the other post-earnings.
And, as is typical of mega-cap companies, Pfizer is awash with capital and in no imminent danger of succumbing to debt. The company’s $45 billion in assets and $29 in liabilities indicates a healthy 1.54-to-1 ratio – not too bad for a player in an ultra-competitive and often besieged industry.
In addition to the company’s comfy cash cushion, skittish shareholders ought to take a gander at the previous earnings announcement’s pleasant surprise: with an average projected EPS of $0.77 easily topped by the announcement of $0.85 (indicating a +10.39% surprise factor), forward-thinking investors need to look back at recent history and appreciate Pfizer’s propensity for beating expectations.
The Bottom Line on Pfizer Stock
As I always like to say, past results no guarantee of future performance… but when it comes to earnings surprises, past results are all we’ve got and they’re pretty impressive in Pfizer’s case.
Bears and shorts are simply ignoring the fact that this company beat consensus EPS estimates four out of the past four times: a 100% track record for a full year, in case you’re keeping score.
Okay, so the entire sector is depressed in price and therefore so is PFE stock. I don’t see this, ipso facto, as a compelling reason to dump one’s shares prior to earnings: no sir and no ma’am, I’ll be using the pressured share price as a rationale to buy low – and the post-earnings surge as a time to sell high.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
