Is A Beat In The Cards For Pfizer (PFE) In Q2 Earnings?

We expect Pfizer, Inc. (NYSE:PFE) to beat expectations when it reports second-quarter 2017 results on Aug 1, before the market opens. Last quarter, the company delivered a positive earnings surprise of 2.99%.

The pharma giant has a mixed record of earnings surprises. The company’s earnings surpassed expectations in two of the last four quarters while missing in the other two, resulting in an average negative surprise of 0.35%.

Pfizer’s shares rose 1.9% this year so far, comparing unfavorably with an increase of 11.8% for the Zacks classified industry.

Factors at Play

New products like Xeljanz (rheumatoid arthritis) and Ibrance (breast cancer) as well as older products like Lyrica (neuropathic pain) and Eliquis (blood thinner) are likely to contribute to the top line meaningfully. Xeljanz (5 mg taken twice daily) was approved in the EU in Mar 2017, which may boost the drug’s sales in the to-be reported quarter.

Also, revenues from the blockbuster prostate cancer drug Xtandi, added to Pfizer’s portfolio following the Sep 2016 Medivation acquisition, are likely to propel U.S. revenues.

The Hospira acquisition is expected to be an important growth driver as well.

Also, Pfizer launched Inflectra, a biosimilar version of Johnson & Johnson (NYSE:JNJ) blockbuster drug Remicade in Nov 2016. Inflectra recorded sales of $17 million in the U.S. and $78 million globally in the first quarter. The biosimilar may generate more sales in the soon-to-be reported quarter.

However, Pfizer will continue to face headwinds in the form of loss of exclusivity on key products like Pristiq, Zyvox and Celebrex and the expiration of a few co-promotion agreements, which will continue to hamper top-line growth. Blockbuster drug Enbrel sales will continue to decline in the quarter due to biosimilar competition. The Prevnar/Prevenar 13 vaccines franchise is expected to continue to see lower sales while lower demand should continue to hurt sales of Viagra.

Meanwhile, the bottom line should be driven by cost savings and share buybacks. However, new product launch expenses and R&D investments are expected to hurt profits.

On the second-quarter call, investor focus is expected to remain on the performance of new products and pipeline progress including biosimilars and immuno-oncology. Importantly, key cancer candidate, Bavencio/avelumab received FDA approval for metastatic Merkel cell carcinoma (MCC) in Mar 2017 and for advanced bladder cancer in May. The drug may bring in some revenues in the second quarter. Management is expected to shed light on how the launch is progressing at the conference call.

Acute lymphoblastic leukemia (ALL) candidate, Besponsa, was also approved in the EU in late Jun 2017. We expect management to comment on the commercialization plans at the conference call.

What Our Model Indicates

Our proven model shows that Pfizer is likely to beat on earnings because it has the right combination of the 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: The Earnings ESP, which represents the difference between the Most Accurate estimate (66 cents per share) and the Zacks Consensus Estimate (65 cents per share), is +1.54%. 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 #3. The combination of Pfizer’s Zacks Rank #3 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

A couple of stocks in the pharmaceuticals sector that also have a positive Earnings ESP and a favorable Zacks Rank are:

Novo Nordisk (CO:NOVOb) A/S (NYSE:NVO) , scheduled to release results on Aug 9, has an Earnings ESP of +3.57% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Celgene Corporation (NASDAQ:CELG) with an Earnings ESP of +0.62% and a Zacks Rank #3. The company is scheduled to release results on Jul 27.

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