Pfizer (PFE - Free Report), a Zacks Rank #1 (Strong Buy), is a long-term stock market winner within the Zacks Medical sector. The stock hit an all-time high this past December before retreating slightly as the market has taken a breather to kick off the new year. PFE sports the highest Zacks Momentum Style Score of ‘A’, and this pullback in the stock price represents a solid buying opportunity for investors. PFE continues to benefit from strong demand for its diversified drug and vaccine portfolio.

Company Description

Pfizer is a global pharmaceutical company that discovers, develops, manufactures, and distributes medicines for humans and animals. PFE’s diversified portfolio includes biologic and small molecule medicines, vaccines, and nutritional healthcare products.

Pfizer’s suite of biopharmaceutical products targets various therapeutic areas such as cardiovascular pain, chronic immune and inflammatory diseases, immunotherapy and related cancer treatments, anti-infective remedies, pneumococcal disease, meningococcal disease, and COVID-19. PFE is comprised of six business units — Oncology, Inflammation & Immunology, Rare Disease, Hospital, Vaccines, and Internal Medicine.

Pfizer is also involved in the contract manufacturing business in which it serves wholesalers, retailers, hospitals, clinics, governments, and pharmacies. PFE was founded in 1849 and is based in New York, NY.

Sales and Earnings Trends

In Q3 2021, PFE delivered revenues of $24.09 billion, outpacing sales estimates by 7.5%. The pharmaceutical giant reported EPS of $1.34, which handily beat the Zacks Consensus Estimate of $1.08 by 24.07%. Pfizer has posted a four-quarter trailing average earnings surprise of 10.85%.

For the most recent quarter (Q4 ‘21), analysts are expecting sales to have surged 104.79% year-over-year to $23.93 billion. The Zacks Consensus Estimate for Q4 EPS is $0.85, which would represent a growth of 102.38% compared to the same quarter in 2020. If PFE were able to hit this quarterly mark, the company will have achieved annual EPS growth of 88.74% to $4.19 for 2021.

As we move further into the new year, analysts covering PFE have notably increased their 2022 EPS estimates by 39.65% in just the past 60 days. The Zacks Consensus Estimate is now $6.41, translating to a growth of 52.98% versus last year. Sales are anticipated to rise by 33.16% to $108.6 billion. Clearly, the sales and earnings trends point to continued growth for PFE.

What the Zacks Model Reveals

The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently seen positive earnings estimate revision activity. The idea is that this more recent information may prove to be more accurate and serve as a better predictor of the future, which can give investors a leg up during earnings season.

The proprietary technique has proven to be quite useful. In fact, when combining a Zacks #3 Rank with a positive Earnings ESP, stocks produced a positive surprise 70% of the time and witnessed average annual returns of 28.3% according to our 10-year backtest.

With a Zacks Rank #1 and a positive Earnings ESP (+1.18%), another earnings beat may be in the cards for PFE when the company reports its Q4 results on February 8^th.

Charting the Course

PFE has advanced over 118% off the March 2020 lows, outperforming the S&P 500 over that time frame. The stock started to display true signs of relative strength in the last year as it returned investors north of 58.17%, widely outperforming the major indices.

Image Source: TradingView, Zacks Investment Research

Pfizer found support during its bullish run at the 200-day moving average in mid-October this past year before ultimately surging into year-end. The stock has experienced a mild correction this year as the market fell in January. This short-term decline is providing bulls with a solid entry point.

PFE is relatively undervalued even after its historic run in the past year, trading at just an 8.33 forward P/E. For comparison purposes, Pfizer’s industry group trades at a 13.01 forward P/E while the S&P 500’s forward P/E sits at 19.23.

Growth Strategy

Pfizer boasts a sustainable pipeline with numerous blockbuster products in its portfolio and multiple late-stage programs that can drive growth. In addition, Pfizer and partner BioNTech’s COVID-19 vaccine is now approved for emergency use in many countries and is fully approved in the United States. The duo has already shipped 2 billion doses to more than 150 countries and is expected to have manufactured 3 billion doses as of December 2021. In addition, Pfizer’s oral antiviral pill for COVID-19 was approved in December and will further increase revenues this year.

PFE has been quite aggressive in terms of its inorganic growth strategy. The biopharma behemoth has made several key acquisitions over the years including immuno-oncology company Trillium Therapeutics in November 2021; cancer-focused biotech Array BioPharma in July 2019; biopharma company Medivation in September 2016; Anacor a few months earlier in June 2016; sterile injectable drugs manufacturer Hospira in September 2015; King Pharmaceuticals in February 2011; and Wyeth in October 2009.

PFE also announced this past December that it has entered into an agreement to acquire Arena Pharmaceuticals, a clinical-stage firm focused on developing innovative potential therapies for the treatment of several immuno-inflammatory diseases.

Bottom Line

PFE is part of the Zacks Medical sector, which ranks in the top 50% of all Zacks sectors. As such, we expect this group to outperform the market over the next three to six months. Quantitative research studies have shown that approximately 50% of a stock’s future price movement is due to the group that it’s in. Making sure we identify stocks within the top Zacks Ranked Sectors is of utmost importance, and PFE certainly fits the bill.

With a dividend yield of 3% and a top Zacks VGM score of ‘A’, it’s not hard to see why PFE is a top stock pick. Robust sales and earnings growth along with a strong technical trend will help to provide a cushion during this market decline. Recent positive earnings estimate revisions should also serve to create a ‘floor’ for any sudden or unexpected downside moves. If you haven’t already done so, make sure to put PFE on your shortlist.