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Why Is Pfizer (PFE) Up 0.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Pfizer (PFE - Free Report) . Shares have added about 0.4% in that time frame, underperforming 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 catalysts.

Pfizer Q3 Earnings & Sales Beat, Ups EPS View

Pfizer beat estimates for both earnings and sales in the third quarter while raising its guidance for earnings and tightening the same for revenues.

Third-quarter 2019 adjusted earnings per share of 75 cents beat the Zacks Consensus Estimate of 63 cents. Earnings declined 2% year over year due to lower revenues and higher taxes, which offset the impact of lower costs in the quarter. Currency changes had a negative impact of 2 cents per share on adjusted earnings.

Revenues of $12.68 billion beat the Zacks Consensus Estimate of $12.15 billion. Revenues declined 5% from the year-ago quarter on a reported basis. On an operational basis, excluding the 2% negative impact of currency, revenues declined 3% year over year as higher sales of some key brands in Pfizer’s Biopharmaceuticals group was offset by a decline of revenues in the Upjohn segment. The segment was hurt mainly by the loss of Lyrica exclusivity in July 2019 in the United States.

Excluding the spin-off of the Consumer Healthcare unit, third-quarter revenues were flat operationally.

International revenues declined 2% to $6.83 billion. However, on an operational basis, international sales rose 2% in the quarter. U.S. revenues declined 8% to $5.85 billion.

Adjusted selling, informational and administrative (SI&A) expenses declined 7% (operationally) in the quarter to $3.2 billion. Adjusted R&D expenses declined 2% to $1.94 billion.

Segment Discussion

Pfizer Biopharma sales grew 7% on a reported basis (up 9% an operational basis) from the year-ago period to $10.1 billion driven by volume growth. Higher sales of brands like Eliquis, Ibrance, Inlyta and Xeljanz, and a strong emerging markets performance (up 15%) drove this segment’s sales growth. Weaker sales of Prevnar 13/Prevenar 13 and Enbrel internationally offset the increase.

Within the Biopharma group, Oncology revenues increased 30% (on an operational basis) to $2.35 billion. Vaccine revenues declined 1% to $1.81 billion. Internal Medicine rose 3% to $2.21 billion. The Inflammation & Immunology franchise rose 6% to $1.23 billion. The portfolio of Rare Disease rose 16% to $601 million. The newly added Hospital sub-segment’s sales rose 6% to $1.92 billion.

Pfizer’s Upjohn group’s sales declined 28% (down 26% on an operational basis) to $2.2 billion mainly due to U.S. loss of exclusivity of Lyrica in July 2019. Excluding the unfavorable impact of Lyrica in the United States, Upjohn sales declined 6% operationally as continued generic competition for certain off-patent products offset sales growth in China.

Revenues from the Consumer Healthcare unit declined 55% (54% on an operational basis) to $377 million as a result of the completion of the JV transaction with Glaxo. Consumer Healthcare’s third quarter revenues reflect only one month of domestic operations and two months of international operations.

Performance of Key Drugs

Ibrance revenues rose 27% year over year to $1.28 billion on continued strong uptake in international markets and consistent growth in the United States.

Xeljanz sales rose 40% to $599 million driven by continued growth in rheumatoid arthritis (RA) revenues and contributions from the drug's 2018 launches for psoriatic arthritis and ulcerative colitis in the United States and only ulcerative colitis indication in certain developed markets.

In July, Xeljanz’s prescribing information in the United States was updated by the FDA to include two additional boxed warnings as well as changes to the indication and dosing for UC following review of a post-marketing study. Regarding this update, Pfizer mentioned on the call that it was not sure how the label update will affect prescribing trends of the drug in the future quarters.

Inlyta revenues increased 98% to $139 million driven mainly by 240% growth in the United States. U.S. sales gained from increased uptake resulting from recent FDA approvals for the combination of Inlyta plus Bavencio and Inlyta plus Keytruda in first-line treatment of advanced renal cell carcinoma patients.

Global Prevnar 13/Prevenar 13 revenues declined 3% to $1.60 billion. Prevnar 13 revenues declined 7% in the United States, reflecting decreased government purchases for the pediatric indication and continued decline in revenues for the adult indication. Prevenar 13 revenues rose 7% in international markets.

Meanwhile, owing to some unfavorable revisions in ACIP's pneumococcal vaccination guidelines for Prevnar 13 in adults in the United States, there may be some decline in demand for Prevnar, which can hurt sales in the future quarters.

Enbrel revenues declined 19% to $415 million in key European markets due to continued biosimilar competition.

Xalkori sales rose 5% to $130 million. Sutent sales declined 7% to $224 million. Eliquis alliance revenues and direct sales rose 20% to $1.03 billion. Chantix sales rose 7% to $276 million in the quarter. Xtandi recorded alliance revenues of $225 million in the quarter, up 25% year over year.

Importantly, new drug Vyndaqel, which was launched in the United States in May 2019 for the treatment of the transthyretin amyloid cardiomyopathy, recorded sales of $156 million in the quarter with $79 million in the United States.

Total biosimilar revenues were $236 million, up 22% year over year. Inflectra/ Remsima recorded sales of $155 million globally, down 5% year over year. New biosimilar product, Retacrit, a biosimilar of Epogen and Procrit, is off to a good start in the United States, recording $64 million of revenues in the third quarter of 2019 versus $30 million in the second quarter.

In sterile injectables, global revenues increased 3% operationally and U.S. revenues increased 1% operationally as Pfizer’s manufacturing recovery efforts start taking shape.

In the Upjohn segment, sales of key drug Lyrica declined 57% to $527 million due to multi-source generic competition that began in July 2019. Viagra sales declined 11% to $120 million due to generic competition that began in December 2017.

2019 Guidance

Pfizer raised its previously issued 2019 guidance for earnings while tightening its range for revenues. Expectations for better operational growth were offset by more onerous currency headwinds than guided previously. Foreign exchange is expected to have an unfavorable impact of $1.4 billion on revenues and 10 cents on adjusted EPS for the year, which indicates more onerous negative impact than guided previously.

Revenues are expected in the range of $51.2 billion to $52.2 billion compared with $50.5 billion to $52.5 billion expected previously. Adjusted earnings per share are expected in the range of $2.94-$3.00 versus the previous expectation of $2.76-$2.86.

Research and development expense is expected in the range of $7.7–$8.1 billion versus $7.9–$8.3 billion while SI&A spending is projected in the range of $13.5–$14.0 billion versus $13.0–$14.0 billion expected earlier. Adjusted tax rate is still expected to be approximately 16% in 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 8.18% due to these changes.

VGM Scores

Currently, Pfizer has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 these revisions looks promising. It comes with little surprise Pfizer has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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