Will Pfizer (PFE) Keep the Earnings Streak Alive in Q2?

Pfizer, Inc.PFE will report second-quarter 2018 results on Jul 31, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 4.05%.

The pharma giant has a strong record of earnings surprises. The company's earnings surpassed expectations in each of the last four quarters, leading to an average positive surprise of 5.23%.

Pfizer Inc. Price and EPS Surprise

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

Pfizer's shares have risen 4% this year so far against a decrease of 1.4% for the industry .

Factors at Play

In the Innovative Health (IH) segment, new products like Xeljanz (rheumatoid arthritis) and Ibrance (breast cancer) as well as older products like Chantix (smoking cessation) and Eliquis (blood thinner) should contribute to the top line meaningfully. The Zacks Consensus Estimate for sales of Ibrance (worldwide), Xeljanz and Chantix is 1.07 billion, $459 million and $281 million, respectively.

In the Essential Health (EH), biosimilars and emerging marketsare expected to support sales.

In the first quarter, unfavorable customer buying patterns somewhat hurt sales of Ibrance and Xeljanz. It remains to be seen if these issues persist and hurt sales of these drugs in the second quarter. Please note that Xeljanz was approved for ulcerative colitis in the United States and for active psoriatic arthritis (PsA) in the EU in the second quarter. These line extensions should bring in some additional sales for the drug in the second quarter.

New cancer drugs Bavencio/avelumab, Besponsa and Mylotarg are also expected to bring in some sales in the second quarter.

However, the loss of exclusivity and associated generic competition for some products primarily Pristiq and Viagra in the United States and Lyrica in Europe and lower revenues from legacy Hospira products due to product shortages will continue to hamper top-line growth. Sales of blockbuster drug, Enbrel will continue to decline in the quarter due to biosimilar competition in key European markets. The Prevnar/Prevenar 13 vaccines franchise may continue to see lower sales in United States while international volumes may continue to improve. The Zacks Consensus Estimate for sales of Enbrel and Prevnar is $523 million and $1.22 billion, respectively.

Pfizer is facing supply shortages for sterile injectable products from the legacy Hospira portfolio mainly due to capacity constraints and technical issues. Pfizer expects to make substantial progress in cutting down the sterile injectable shortages with additional capacity expected to be available in 2019.

Meanwhile, the bottom line is likely to be driven by cost savings and share buybacks.

We also expect management to provide an update on initial launch uptake for newly approved oral SGLT-2 inhibitor, Steglatro (ertugliflozin) tablets on the conference call. Apart from being approved as a monotherapy to treat type II diabetes, Steglatro has also been approved for use in combination with metformin under the brand name Segluromet and with Januvia under the brand name, Steglujan. Pfizer has a co-marketing deal with Merck MRK for these drugs.

Earlier this month, Pfizer announced that it is re-organizing its business into three business segments - Innovative Medicines, Established Medicines and Consumer Healthcare. The present Innovative Health unit will be called Innovative Medicines. The Essential Health unit will be renamed to Established Medicines. We expect numerous investor questions on this re-organization plan on the conference call.

What Our Model Indicates

Our proven model does not conclusively show that Pfizer is likely to beat on earnings this quarter. This is because 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. That is not the case here, as you will see below.

Earnings ESP: Its Earnings ESP is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 75 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Pfizer's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some large biotech/drug stocks worth considering per our model. These have the right combination of elements to beat on earnings this time around:

Bristol-Myers Squibb Company BMY has an Earnings ESP of +0.65% and a Zacks Rank of 3. The company is scheduled to report second-quarter earnings on Jul 26. You can see the complete list of today's Zacks #1 Rank stocks here .

Amgen, Inc. AMGN is slated to announce financial figures on Jul 26. The company has an Earnings ESP of +1.46% and is a Zacks #3 Ranked stock.

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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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