Is a Beat Likely for Pfizer (PFE) This Earnings Season?

We expect Pfizer, Inc.PFE to beat expectations when it reports third-quarter 2017 results on Oct 31, before the market opens. Last quarter, the company delivered a positive earnings surprise of 3.08%.

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 0.39%.

Pfizer's shares have risen 11.7% this year so far, comparing unfavorably with an increase of 20.3% 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) may contribute to the top line meaningfully.

However, loss of exclusivity and associated generic competition for products like Pristiq Vfend, Zyvox and Celebrex and the expiration of a few co-promotion agreements will continue to hamper top-line growth.

Sales of blockbuster drug Enbrel will continue to decline in the quarter due to biosimilar competition. The lower sales trend in Prevnar/Prevenar 13 vaccines franchise is likely to continue. Sales of Viagra are also likely to be affected by lower demand. The Zacks Consensus Estimate for Prevnar and Enbrel is $1.47 billion and $565 million, respectively.

At the Q2 call, management said that the penetration of Inflectra, Pfizer's biosimilar version of J&J's JNJ blockbuster rheumatoid arthritis drug Remicade, in the United States has been slower than expected as it is experiencing access challenges among national commercial payers.In fact, in September, Pfizer filed a lawsuit in a U.S. district court alleging that J&J wasresorting to unfair practices to prevent sale of Inflectra. Though J&J did not discuss much about Inflectra's impact on the branded drug's sales or the lawsuit at its Q3 call, we expect an update from Pfizer at its upcoming investor call.

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

Pfizer's acute lymphoblastic leukemia (ALL) candidate, Bavencio/avelumab received FDA approval for metastatic Merkel cell carcinoma (MCC) in March 2017 and for advanced bladder cancer in May. Bavencio was also approved in EU and Japan in September for MCC

Two leukemia treatments - Besponsa/inotuzumab ozogamicin for relapsed/refractory acute lymphoblastic leukemia (ALL) and Mylotarg for newly diagnosed CD33-positive acute myeloid leukemia (AML) were also approved by the FDA in the third quarter of 2017.Besponsa was also approved in the EU in June.

We expect management to record sales from these new cancer drugs this quarter.

Earlier this month, Pfizer said that it is exploring strategic alternatives for its Consumer Healthcare segment including a partial or a full separation through a spin-off, sale or other transaction. An update on the matter is expected at the investor 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:Earnings ESP , which represents the difference between the Most Accurate estimate (65 cents per share) and the Zacks Consensus Estimate (64 cents per share), is +0.94%. 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.

Pfizer, Inc. Price and EPS Surprise

Pfizer, Inc. Price and EPS Surprise | Pfizer, Inc. Quote

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:

Merck & Co., Inc. MRK , scheduled to release results on Oct 27, has an Earnings ESP of +0.61% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

Bristol-Myers Squibb Company BMY , scheduled to release results on Oct 26, has an Earnings ESP of +0.35% and a Zacks Rank #.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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