Pfizer Inc. (NYSE:PFE) just reported healthy earnings but the stock price didn’t move much. Our analysis suggests that investors might be missing some promising details.
How Do Unusual Items Influence Profit?
To properly understand Pfizer’s profit results, we need to consider the US$7.0b expense attributed to unusual items. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that’s hardly a surprise given these line items are considered unusual. If Pfizer doesn’t see those unusual expenses repeat, then all else being equal we’d expect its profit to increase over the coming year.
That might leave you wondering what analysts are forecasting in terms of future profitability.
Our Take On Pfizer’s Profit Performance
Because unusual items detracted from Pfizer’s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Pfizer’s statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the last year. At the end of the day, it’s essential to consider more than just the factors above, if you want to understand the company properly. So if you’d like to dive deeper into this stock, it’s crucial to consider any risks it’s facing. For instance, we’ve identified 3 warning signs for Pfizer (1 can’t be ignored) you should be familiar with.
This note has only looked at a single factor that sheds light on the nature of Pfizer’s profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.