Pfizer beats Q2 2017 EPS estimates, narrows FY17 EPS view

The stock of pharmaceutical giant Pfizer Inc (NYSE: PFE) fell early August, after reporting a lower-than- anticipated fiscal 2017 second-quarter revenues.

However, Pfizer had reported an increase in Q2 2017 earnings compared with last year’s second-quarter. Furthermore, the company’s non-GAAP earnings also exceeded analysts’ estimates. So, the stock had rebounded strongly to close at $33.80 yesterday. We anticipate the uptrend to continue due to the facts given below.

The New York-based Pfizer reported Q2 2017 GAAP earnings of $3.073 billion, or $0.51 per share, on revenues of $12.896 billion, up 50% from $2.047 billion, or $0.33 per share, on revenues of $13.147 billion in Q2 2016.

Pfizer

Excluding accounting adjustments and acquisition related costs, among others, second-quarter 2017 non-GAAP earnings were $4.063 billion, or $0.67 per share, compared with $3.929 billion, or $0.64 per share, in the same period last year. The Street analysts had anticipated Pfizer to report earnings of $0.66 per share on revenues of $13.08 billion.

Lower demand for Enbrel – a drug for rheumatoid arthritis treatment – and Prevnar – a vaccine for Pneumonia – resulted in a slightly weaker performance during the June 2017 quarter.

Geographically, during the second-quarter, Pfizer generated 49.2% of total revenues at $6.34 billion from the US market. The rest of the markets contributed $6.55 billion or 50.8% of total revenue, down 3% y-o-y.

Pfizer has two major business segments – Innovative Health and Essential Health. Innovative Health revenues increased 9% to $7.67 billion, from $7.10 billion in the year-ago period. An increase in the sales of Lyrica, Xtandi, Ibrance, Xeljanz, Eliquis, and Champix contributed to the growth of the Innovative Health division. Ibrance, a breast cancer drug, generated $853 million, an increase of $339 million from the prior-year period.

The gains in the Innovative Health division were offset by the poor performance of the Essential Health division. Revenues fell 12% to $5.23 billion in Q2 2017, from $6.04 billion in Q2 2016. Lower sales of Peri-LOE products, legacy products, and sterile injectable products were responsible for the decline. It was partially offset by a revenue growth in biosimilars. The divestment of Hospira infusion systems also had a negative impact on the growth of the Essential Health division.

Sales of Enbrel, which is sold outside the US and Canada, plunged 19.5% to $617 million. Likewise, sales of Prevnar declined 8.2% to $1.15 billion.

Investors are concerned about the fact that Pfizer’s blockbuster drugs such as Viagra and Lyrica are facing patent expiration. In this regard, the company clarified that it will receive 25 to 30 patent approvals over the next five years. Pfizer also expects at least 15 of them to turn into blockbuster drugs.

The company also narrowed its 2017 adjusted earnings guidance to a range of $2.54 per share to $2.60 per share. Previously, Pfizer had issued an outlook of $2.50 to $2.60 per share.

The stock of Pfizer is trading at a forward PE ratio of about 12.5, which is lower than the industry’s average of about 16.5x. The forward EV/EBITDA ratio of Pfizer is about 10.3x, which is also lower than the industry’s average of about 13.4x. Investment research firm Jefferies Group, LLC has given a price target of $35 for the stock. Thus, fundamentally, the stock is expected to attract investors on cheaper valuation.

The stock of Pfizer is rising after testing the support at 32.05. The ascending stochastic oscillator also confirms the bullishness in the stock. The next resistance for the stock is at 36.50, as indicated in the chart below. So, we can expect the current uptrend to continue.

To benefit from the bullishness, we are considering buying a high or above option valid for one week. In order to enter the trade, the stock of Pfizer should trade near $33.

---