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Will Pfizer (PFE) Beat Q4 Earnings Despite Generics? - Analyst Blog

Arpita Dutt
Updated

Pharma giant, Pfizer (PFE), will be reporting fourth quarter and full year 2014 results on Jan 27, before the opening bell.

Pfizer’s track record has been pretty good in the first nine months of 2014 with the company beating earnings estimates consistently. The average earnings surprise over the last four quarters is 3.67%.

Celebrex Generics to Hit 4Q Revenues

Pfizer, which has been struggling to deliver top-line growth in the face of genericization of key products, will see fourth quarter results affected by the Dec 2014 entry of generic versions of Celebrex. Worldwide Celebrex revenues were $2.15 billion in the first nine months of 2014. Alliance revenues are also under pressure with the expiry of collaboration for products like Enbrel. We note that third quarter 2014 revenues were hit by about $750 million due to loss of exclusivities (LOEs) and decline in alliance revenues.

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Pfizer expects the period of high LOE impact to continue through 2016 after which the size of the impact should go down substantially.

Currency movement will also have an impact on results given Pfizer’s presence in ex-U.S. markets.

In such a scenario, the performance of core products like Lyrica and the Prevnar franchise and new products like Eliquis, Xeljanz, Xalkori and Inlyta as well as pipeline progress are key focus areas for investors.

Last quarter, Pfizer reported that Eliquis gained significant share in the anticoagulant market. Rheumatoid arthritis treatment, Xeljanz, should also see steady share gains with growing awareness regarding its efficacy as a monotherapy option. Earlier this year, Pfizer said that Xeljanz is now the third prescribed choice among rheumatologists in the segment of self-administrated biologicals and has more than 10% market share in this segment. Xeljanz continues to do well in a number of important markets.

Meanwhile, Pfizer has a very important regulatory event coming up with the FDA expected to respond on the company’s regulatory application for experimental cancer treatment, Ibrance, by Apr 13. Other important pipeline candidates include ertugliflozin (diabetes), bococizumab (cholesterol lowering in high risk individuals) and vaccines. The company’s biosimilar efforts will also be in focus. Pfizer is targeting more than 15 approvals in the next four years. Immuno-oncology will also be a focus area this year.

Another question that remains is whether Pfizer is heading for a split. On its third quarter call, the company had said that during 2015, it would put in significant effort towards setting up the groundwork required to operationalize a potential split. The company currently has two primary businesses – an innovative R&D driven portfolio and the global established pharmaceutical business. Business development deals will also be an area of interest – last year, Pfizer’s attempts to acquire AstraZeneca (AZN) remained unsuccessful.

At the time of presenting third quarter results, Pfizer had guided towards 2014 earnings of $2.23 - $2.27 per share on revenues of $48.7 billion - $49.7 billion. Cost control and share buybacks should help the company achieve its earnings guidance.

What Our Model Indicates

Our proven model shows that Pfizer is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for increasing the odds of an earnings surprise. This is the case as elaborated below.

Zacks ESP:  The Earnings ESP for Pfizer is 1.89%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are 54 cents and 53 cents per share, respectively.

Zacks Rank: PFE’s Zacks Rank #3 increases the predictive power of ESP.

Stocks That Warrant a Look

Here are a couple of health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

AbbVie (ABBV) has an Earnings ESP of +1.18% and carries a Zacks Rank #2 (Buy). It is scheduled to report results on Jan 30.

The Earnings ESP for Actavis (ACT) is +3.04% and it carries a Zacks Rank #3. The company is scheduled to release results on Feb 18.


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