We expect Pfizer, Inc. PFE to beat expectations when it reports fourth-quarter and full year 2017 results on Jan 30, before the market opens. Last quarter, the company delivered a positive earnings surprise of 3.08%.
The pharma giant has a fairly decent record of earnings surprises. The company’s earnings surpassed expectations in three of the last four quarters while missing in one, resulting in an average positive surprise of 0.79%.
Pfizer’s shares have risen 18.7% in the past year, comparing unfavorably with an increase of 24.7% for the industry.
Factors at Play
New products like Xeljanz (rheumatoid arthritis) and Ibrance (breast cancer) as well as older products like Lyrica (neuropathic pain), Chantix (smoking cessation) and Eliquis (blood thinner) are likely to contribute meaningfully to the top line.
However, the loss of exclusivity and associated generic competition for some products (primarily Pristiq in the United States and Vfend and Lyrica in developed Europe), supply shortages in legacy Hospira products, and divesture of the Hospira Infusion Systems unit will continue to hamper top-line growth.
Blockbuster drug Enbrel’s sales will continue to decline in the quarter due to biosimilar competition. The Prevnar/Prevenar 13 vaccines franchise is likely to see lower sales while lower demand is expected to hurt sales of Viagra.
On the third-quarter call, Pfizer said that it is facing supply shortages for products from legacy Hospira portfolio mainly due to capacity constraints and technical issues. At the time of acquiring Hospira in September 2015, Pfizer had estimated that it would take a couple of years to integrate the manufacturing plants and resolve the majority of the supply chain issues. The company also stated that the remediation of the business has taken longer than expected. We expect the supply shortages to hurt sales in the fourth quarter.
Meanwhile, the bottom line is likely to be driven by cost savings and share buybacks.
Two leukemia treatments – Besponsa/inotuzumab ozogamicin (approved in EU in June 2017 and in the United States in August 2017) for relapsed/refractory acute lymphoblastic leukemia (ALL) and Mylotarg for newly diagnosed CD33-positive acute myeloid leukemia (AML) were approved in third-quarter 2017.
Xeljanz, Sutent and Bosulif were approved for line extensions in the fourth quarter while Ixifi, Pfizer’s second biosimilar version of Johnson & Johnson’s JNJ blockbuster drug Remicade, was also launched in December.
All these new products and line extensions should bring in some additional sales in the fourth quarter.
We also expect management to update on the commercialization plans for new approved oral SGLT-2 inhibitor, Steglatro (ertugliflozin) tablets on the conference call. Apart from being approved as a monotherapy to treat type II diabetes, Steglatro has also been approved for use in combination with metformin under the brand name, Segluromet and with Januvia, under the brand name Steglujan.
What Our Model Indicates
Our proven model shows that Pfizer is likely to beat on earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate is +0.45%. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Pfizer has a Zacks Rank #2. The combination of Pfizer’s Zacks Rank #2 and positive ESP makes us confident of an earnings beat in the upcoming release.
Sell-rated stocks (Zacks Rank #4 or 5), on the other hand, should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some other health care stocks worth considering per our model. These have the right combination of elements to beat on earnings this time around:
AbbVie Inc. ABBV is scheduled to release results on Jan 26. The company has an Earnings ESP of +1.30% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Merck & Co., Inc. MRK has an Earnings ESP of +1.06% and a Zacks Rank of 3. The company is scheduled to report earnings on Feb 2.
Pfizer, Inc. Price, Consensus and EPS Surprise
Pfizer, Inc. Price, Consensus and EPS Surprise | Pfizer, Inc. Quote
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