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Pfizer punished by dollar strength

The drug-maker will report its first-quarter number on Tuesday 28 April, and it will need to find a cure for the strength of the dollar.

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The pharmaceutical company’s first-quarter numbers were left limping as the strength of the greenback dented its performance. Pfizer generates 60% of its revenue from outside of the US, and if the dollar remains at these levels throughout 2015, it will shave off $2.8 billion in annual revenue and 17 cents in full-year earnings per share (EPS). 2014 was great for the US dollar, as the Federal Reserve wound down its quantitative easing policy. Now that there is talk of a rate rise in the second-half of the year, the dollar will be an even bigger thorn in Pfizer’s side.

Pfizer is still suffering from a lack of income from popular patents that have run out. While the healthy cash flows from those patents was flowing, the company didn’t plough the money in to research and development, and now it is paying the price for it.

The firm is not short of cash, and the market knows Pfizer is on the lookout for a takeover, and ideally one that would allow it to lower its tax bill. It appears that Pfizer would rather wait it out and look for an acquisition opportunity to expand, rather than pour its spare cash into the development of new drugs.

When Pfizer reveals its first-quarter numbers, the consensus is for revenue of $10.7 billion and EPS of 49 cents. The fourth-quarter figures came in ahead of market expectations. The revenue was $13.11 billion and the EPS was 54 cents, and the market was anticipating $12.92 billion and 52 cent respectively.

The drug company will post full-year numbers in January 2016, and the market is expecting revenue of $45.91 billion and EPS of $2.07. These forecasts represent a 7% drop in revenue and an 8.4% decline in EPS.

Investment banks are bullish on Pfizer and out of the 25 ratings, 16 are buys, seven are holds, and two are sells. The average target price is $36.52, which is slightly higher than the current price. Equity analysts are moderately bullish on Merck & Co, and out of the 23 recommendations, 11 are buys, and 12 are holds. The average target price is $63.54, which is 11.1% above the current price.

The number of short positions being taken out on Pfizer is at its lowest level in two months, but the short interest is still 38% higher since the fourth-quarter numbers were announced.

The stock has consolidated in the $35 region, and $36 is the initial target, and a move above it will bring $37 into play. The 50-day moving average is providing support at $34.59, and a move below it will put $34 on the radar.

Pfizer is available for extended hours trading.

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