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Pfizer (PFE) Up 4.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Pfizer (PFE - Free Report) . Shares have added about 4.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Pfizer due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Pfizer Beats on Q3 Earnings, Narrows View

Pfizer reported third-quarter 2018 adjusted earnings per share of 78 cents, which beat the Zacks Consensus Estimate of 76 cents. Earnings rose 16% year over year driven by a lower tax rate and share count due to share buybacks in the quarter. Higher other income and currency tailwinds also contributed to bottom-line growth.

The company recorded revenues of $13.3 billion, which slightly missed the Zacks Consensus Estimate. Revenues rose 1% from the year-ago quarter on a reported basis. Currency fluctuation hurt sales by 1% in the quarter due to a strong dollar and weakening of certain emerging markets currencies and euro. On an operational basis, excluding the impact of currency, revenues rose 2% year over year.

Higher sales of key brands, Ibrance, Eliquis and Prevnar, were partially offset by loss of exclusivity for some products, lower sales of legacy Established Products in developed markets and continued supply shortages in legacy Hospira products.

International revenues rose 5% (up 6% an operational basis) to $6.94 billion. U.S. revenues declined 3% to $6.36 billion.

Revenues from the Consumer Healthcare segment, which Pfizer is considering selling, rose 2% to $839 million. Global Oncology revenues increased 11% to $1.78 billion. Global Vaccine revenues rose 13% to $1.85 billion. Internal Medicine rose 1% to $2.46 billion. The Inflammation & Immunology franchise rose 4% to $1.02 billion. However, the portfolio of Rare Disease declined 5% to $531 million.

Segment Discussion

Pfizer’s reporting segments are Pfizer Innovative Health (IH) and Pfizer Essential Health (EH).

Pfizer IH sales grew 4% on a reported basis (up 5% an operational basis) from the year-ago period to $8.47 billion as higher sales of Eliquis and Xeljanz globally, Ibrance in international markets and Prevnar 13 and Xtandi in the United States offset lower sales of Enbrel.

With Viagra losing exclusivity in December 2017, its U.S. and Canada sales are now reported in the EH segment against IH previously. This hurt sales of the IH segment while adding to EH segment sales.

Ibrance revenues rose 18% year over year to $1.03 billion as higher international sales offset a decline in the United States. Ibrance sales outside the United States rose 98% driven by continued uptake in developed Europe and launch in Japan. In the United States, Ibrance sales declined 1% due to rising competition and increased rebates.

In the CDK inhibitors category, Ibrance holds 90% share in terms of new prescription volume despite rising competition.
 
Xeljanz sales rose 26% to $432 million driven by continued growth in rheumatoid arthritis revenues and some early contributions from the drug's recent expansion into psoriatic arthritis and ulcerative colitis. Eliquis alliance revenues and direct sales rose 36% to $870 million. Chantix sales rose 9% to $261 million in the quarter. However, Lyrica sales declined 2% to $1.13 billion.

Xtandi recorded alliance revenues of $180 million in the quarter, up 20% year over year. In July, Xtandi’s U.S. label was expanded to include men with non-metastatic castration-resistant prostate cancer. Xtandi was approved for the same indication in the EU in October. This label expansion can drive growth in 2019.

Global Prevnar 13/Prevenar 13 revenues rose 10% to $1.66 billion. Prevnar 13 revenues rose 12% in the United States due to higher government purchases than last year for the pediatric indication. Prevenar 13 revenues rose 6% in international markets driven by higher volumes for the pediatric indication due to increased orders from the Gavi Alliance and launch in China.

Enbrel revenues declined 11% to $531 million in key European markets due to continued biosimilar competition.

Pfizer EH segment sales declined 4% (both on a reported and operational basis) to $4.83 billion.

EH revenues were hurt by the loss of exclusivity and associated generic competition for products, primarily Pristiq and Viagra in the United States and Lyrica in Europe and lower revenues from sterile injectables portfolio due to continued legacy Hospira product shortages in the United States. Pfizer is facing supply shortages for sterile injectable products (SIP) from the legacy Hospira portfolio mainly due to capacity constraints and technical issues. On the call, the company said it expects these issues to be resolved by end of 2019.

Also, lower sales of legacy Established Products in developed markets driven by industry-wide pricing challenges hurt EH segment sales.

Total Viagra sales declined 55% to $137 million due to generic competition that began in December 2017.

However, in the EH business, biosimilars and emerging markets did well in the quarter. Biosimilars revenues rose 40% operationally while emerging markets revenues grew 11% operationally.

While Inflectra recorded sales of $71 million in the United States and $166 million globally, other biosimilars brought in sales of $31 million (up 6%).

Other Details

Adjusted selling, informational and administrative (SI&A) expenses were flat (operationally) in the quarter at $3.47 billion. Adjusted R&D expenses rose 8% to $2.0 billion.

In the quarter 2018, Pfizer bought back shares worth $1.1 billion. As of Oct 30, 2018, Pfizer’s remaining share repurchase authorization was $7.4 billion.

2018 Guidance

Pfizer narrowed its earnings as well as sales expectations for the full year.

Revenues are expected in the range of $53.0 billion to $53.7 billion compared with of $53.0 billion to $55.0 billion previously.

Pfizer attributed the lowered sales outlook to weaker-than-expected revenues in the EH segment (due to continued shortages in the sterile-injections business) and currency headwinds.

The guidance assumes no generic competition for Lyrica in the United States until June 2019.

Adjusted earnings per share are expected in the range of $2.98-$3.02 compared with of $2.95-$3.05 billion expected previously. At the mid-point, adjusted EPS is still expected to increase 13%.

Research and development expenses guidance was maintained in the range of $7.7–$8.1 billion while SI&A spending is projected in the range of $14.0–$14.5 billion versus $14.0–$15.0 billion expected previously.

Adjusted tax rate is still expected to be approximately 16% in 2018.

In 2018, Pfizer expects to buy back shares worth $12 billion with $9.0 billion of share repurchases already completed year to date.











 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Pfizer has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Pfizer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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