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Pfizer (PFE) Up 2.3% 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 2.3% 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 its most recent earnings report in order to get a better handle on the important drivers.

Pfizer Beats on Q1 Earnings & Sales, Raises EPS View

Pfizer beat estimates for first-quarter earnings and sales, raised the mid-point of its earnings expectations for 2019 by a penny and confirmed its previous guidance for full-year sales

First-quarter 2019 adjusted earnings per share of 85 cents beat the Zacks Consensus Estimate of 77 cents. Earnings rose 13% year over year driven by higher sales and reduced share count. Currency changes had a negative impact of 2 cents per share on adjusted earnings.

Revenues of $13.12 billion beat the Zacks Consensus Estimate of $12.80 billion. Revenues rose 2% from the year-ago quarter on a reported basis. Currency fluctuation hurt sales by 4% in the quarter. On an operational basis, excluding the impact of currency, revenues rose 5% year over year driven by higher sales of some key brands in Pfizer’s Biopharmaceuticals group. While volumes rose 8%, net prices declined 3% in the quarter.

International revenues rose 5% (up 12% an operational basis) to $6.94 billion. U.S. revenues however declined 2% to $6.18 billion.

Adjusted selling, informational and administrative (SI&A) expenses rose 3% (operationally) in the quarter to $3.31 billion. Adjusted R&D expenses declined 2% to $1.69 billion.

In the quarter, Pfizer re-purchased shares worth $8.9 billion comprising $2.1 billion of open-market share repurchases and $6.8 billion in accelerated share repurchases per an agreement executed in February 2019. The remaining share authorization at the end of April was $5.3 billion.

Change in Segment Reporting

In 2018, Pfizer’s reporting segments were Pfizer Innovative Health (IH) and Pfizer Essential Health (EH).
Beginning the first quarter of 2019, Pfizer is reporting under three new business units — Pfizer Biopharmaceuticals Group (previous IH unit except Consumer Healthcare), Upjohn (previous EH unit) and Consumer Healthcare. However, Pfizer re-allocated its biosimilar portfolio and certain legacy established products into the Biopharma group from the previous EH unit. The Biopharma group now includes the Hospital franchise, which comprises Pfizer’s global portfolio of sterile injectable and anti-infective medicines and also includes revenues from its contract manufacturing operation called Pfizer CentreOne.

Segment Discussion

Pfizer Biopharma sales grew 3% on a reported basis (up 7% an operational basis) from the year-ago period to $9.19 billion. Higher sales of Eliquis, Ibrance, Prevnar 13/Prevenar 13 and Xeljanz drove this segment’s sales growth, partially offsetting sales in the hospital and rare disease businesses. In the Biopharma group, which accounted for 70% of Pfizer’s revenues in the quarter, volumes rose 11% driven by growth in several key brands, emerging markets and biosimilars.

Within the Biopharma group, Oncology revenues increased 15% to $1.96 billion. Vaccine revenues rose 13% to $1.61 billion. Internal Medicine rose 10% to $2.22 billion. The Inflammation & Immunology franchise rose 8% to $1.04 billion. However, the portfolio of Rare Disease declined 9% to $470 million.Newly added Hospital sub-segment’s sales declined 3% to $1.9 billion.

Pfizer’s Upjohn group’s sales declined 1% to $3.08 billion. On an operational basis, sales rose 1% in the segment as strong growth in emerging markets (mainly China) and Japan was offset by decline in developed markets other than Japan due to lower revenues of Viagra/authorized generic version of Viagra, Lyrica and Greenstone, Upjohn's authorized generic subsidiary, primarily due to industry-wide pricing challenges in the United States.

Revenues in the Consumer Healthcare unit declined 5% (2% on an operational basis) to $858 million due to lower sales in the U.S. market, which were partially offset by higher sales in international markets.

Performance of Key Drugs

Ibrance revenues rose 25% year over year to $1.13 billion as continued strong uptake in international markets made up for moderating volumes in United States.

Xeljanz sales rose 34% to $423 million driven by continued growth in rheumatoid arthritis (RA) revenues and contributions from the drug's recent expansion into psoriatic arthritis and ulcerative colitis in the United States and only ulcerative colitis indication in certain developed markets.

Global Prevnar 13/Prevenar 13 revenues rose 10% to $1.49 billion. Prevnar 13 revenues rose 6% in the United States reflecting increased government purchases for the pediatric indication, which made up for the continued decline in revenues for the adult indication. Prevenar 13 revenues rose 16% in international markets driven by higher revenues in emerging markets.

Enbrel revenues declined 3% to $451 million in key European markets due to continued biosimilar competition.

Xalkori sales declined 16% to $123 million primarily due to competitive pressure. Sutent sales declined 6% to $232 million. Eliquis alliance revenues and direct sales rose 36% to $1.01 billion. Chantix sales rose 10% to $273 million in the quarter. Xtandi recorded alliance revenues of $168 million in the quarter, up 6% year over year.

Revenues from the biosimilars portfolio grew 7% operationally in the quarter. Inflectra recorded sales of $138 million globally, flat year over year.

In the Upjohn segment, sales of key drug Lyrica declined 1% to $1.19 billion reflecting wholesaler destocking ahead of the drug’s anticipated loss of exclusivity (LOE) in June and lower sales in developed Europe due to generic launches. Viagra sales declined 19% to $145 million due to generic competition that began in December 2017.

2019 Guidance

Pfizer maintained its sales guidance for 2019. However, the company raised the mid-point of its earnings guidance by a penny as increased expectation for other income due to a milestone payment recorded in the first quarter, was offset by stronger currency headwinds. The guidance includes a full year of revenues and expense contribution from the Consumer Healthcare unit.

Revenues are still expected in the range of $52.0 billion to $54.0 billion. Adjusted earnings per share are expected in the range of $2.83-$2.93 versus the previous expectation of $2.82-$2.92.

In 2019, Pfizer expects continued strong growth of key product franchises, including Ibrance, Eliquis, Xeljanz and Prevnar However, LOEs are expected to hurt 2019 sales by $2.6 billiion including the expected LOE of key drug Lyrica in the United States in June 2019. Also, currency headwinds are expected to significantly pull down 2019 revenues.

Research and development expense is expected in the range of $7.8–$8.3 billion while SI&A spending is projected in the range of $13.5 –$14.5 billion. Adjusted tax rate is expected to be approximately 16% in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Pfizer has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. 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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