Big Post-Earnings Swing Expected for Pfizer

Short interest on PFE is at six-month highs ahead of earnings

Managing Editor
Oct 30, 2017 at 3:51 PM
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Third-quarter pharmaceutical earnings and news -- such as Merck's recent catastrophe -- are continuing to make an impression on the market, and drug company Pfizer Inc. (NYSE:PFE) is set to report results ahead of the opening bell tomorrow. Here's a closer look at PFE stock ahead of earnings, and how options traders have been positioning themselves on the Dow component.

Pfizer stock has set a series of higher lows in 2017, but -- after setting a new annual high of $36.78 last week -- have pulled back to meet up with support in the $34.50-$35 region, which was previously a layer of resistance. At last check, the pharma stock was down 1.4% at $35.08, and up about 8% year-to-date.

Historically, PFE shares have moved an average of 1.5% the day after earnings, looking back over the past two years' worth of data. This time around, the options market is pricing in a bigger-than-usual one-day swing of 4.5%, per Trade-Alert.

This expected volatility may seem steep, but there are two factors that could contribute to a bigger-than-usual post-earnings move in PFE tomorrow. First, analysts are evenly split, with eight "buy" or better ratings and seven "hold" or "sell" recommendations. A significant surprise in Pfizer's quarterly results could prompt some of these analysts to issue changes to their ratings or price targets, thereby exacerbating the stock's directional move.

And then there are short sellers, who ramped up their bets against PFE by 19% in the most recent reporting period, despite the stock's strong price action. Short interest on the stock is now at its highest level since early April, setting the stage for a possible short-squeeze situation if PFE can manage to beat Wall Street's expectations.

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