What To Expect From Pfizer With Uncertainty Around Earnings

Jan.27.14 | About: Pfizer Inc. (PFE)

Pfizer Inc. (NYSE:PFE) is set to report FQ4 2013 earnings before the market opens on Tuesday, January 28th. Pfizer is an American pharmaceutical/biotech company and is one of the world's largest pharmaceutical companies by revenue. Some of Pfizer's most well known drugs include Lipitor, Viagra, Celebrex, and Zithromax. Much of Pfizer's success has come from its large scale research and development effort aimed at finding new treatments for various diseases.

In December Amy Shulman shocked investors by announcing her abrupt departure from the company. Shulman was a top executive and the head of the global healthcare business. She seemed to be a rising star at Pfizer and has been included on the Fortune Most Powerful Women list. There is a great deal of uncertainty surrounding the events leading to Ms. Shulman's departure, and analysts also seem to be divided about how well Pfizer will perform this quarter.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

The current Wall Street consensus expectation is for Pfizer to report 53c EPS and $13.363B revenue, while the current Estimize.com consensus from 11 Buy Side and Independent contributing analysts is 53c EPS and $13.487B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Pfizer report inline with Wall Street on profit and beat slightly on revenue.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a very small differential between the 2 groups' forecasts.image

Over the previous 6 quarters the consensus from Estimize.com was more accurate in forecasting Pfizer's profit 4 times and was more accurate in predicting revenue twice. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus. image

The distribution of estimates published by analysts on Estimize range from 51c to 57c EPS and $13.059B to $15.000B in revenues. This quarter we're seeing a larger distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A larger distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings. Analysts are more divided than usual this quarter in forecasting how well Pfizer will perform.image

The Wall Street EPS consensus dipped throughout the quarter from a starting point of 54c to 53c. The Wall Street revenue consensus also inched lower throughout the quarter from $13.385B to $13.363B. The Estimize EPS consensus dropped from 54c to 53c while the Estimize revenue consensus plunged up from $13.901B to $13.487B. Timeliness is correlated with accuracy and at the very end of the quarter we saw a sharp downward revision in the Estimize revenue consensus.image

The analyst with the highest estimate confidence rating this quarter is THammers who projects 54c EPS and $13.400B in revenue. In the Winter 2014 season, THammers is currently ranked as the 3rd best analyst and is ranked 15st overall among over 3,500 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case the highest rated estimate is forecasting Pfizer to beat both Wall Street and Estimize on profit but report between the two groups on revenue.

This quarter we have seen a wider distribution of Estimates for Pfizer than previous quarters as investors are divided in opinion about how strong the company's earnings will be. The aggregate consensus from the Estimize platform is that Pfizer will report inline on EPS but come up beat the Street by a small margin on revenue.