HomeMost PopularInvestingHow Should You Play Merck (MRK) Stock Ahead of Q1 Earnings?

How Should You Play Merck (MRK) Stock Ahead of Q1 Earnings?

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Merck MRK will report first-quarter 2024 results on Apr 25, before market open. In the last reported quarter, the company delivered an earnings surprise of 133.3%.

Factors to Consider

The Zacks Consensus Estimate for Merck’s total revenues is $15.34 billion. The Zacks Consensus Estimate for Merck’s Pharmaceutical unit is $13.53 billion, while our estimate is $13.50 billion.

In the Pharmaceuticals segment, strong global underlying demand across its business, particularly for cancer drug Keytruda and HPV vaccine, Gardasil, is likely to have boosted sales growth in the first quarter like several previous quarters.

In oncology drugs, Keytruda sales are likely to have been driven by increased uptake across earlier-stage indications globally, like triple-negative breast cancer and renal cell carcinoma, and continued strong momentum in metastatic indications. In addition, Keytruda’s approval for early-stage non-small cell lung cancer (NSCLC) in October 2023 is likely to have contributed to sales growth. The Zacks Consensus Estimate for Keytruda’s sales is $6.80 billion, while our estimate is $6.81 billion.

Keytruda alone accounts for around 42% of the company’s pharmaceutical sales. Keytruda has played an instrumental role in driving Merck’s steady revenue growth in the past few years. Though Keytruda may be Merck’s biggest strength and a solid reason to own the stock, it can also be argued that the company is excessively dependent on the drug and should look for ways to diversify its product lineup. Keytruda stands to lose patent exclusivity post 2028.

Merck is working on different strategies to drive the long-term growth of Keytruda. These include innovative immuno-oncology combinations, including Keytruda with TIGIT, LAG3 and CTLA-4 inhibitors. In partnership with Moderna MRNA, Merck is developing a personalized mRNA therapeutic cancer vaccine (V940/mRNA-4157) in combination with Keytruda for the treatment of adjuvant melanoma. Merck and Moderna initiated a pivotal phase III study in adjuvant melanoma in July 2023, while a phase III study in earlier stage NSCLC began in December 2023.

With regard to the HPV vaccine, Gardasil, ex-U.S. sales are expected to have been driven by strong demand in international markets like China. In the United States, higher pricing could have benefited sales.

The Zacks Consensus Estimate for Gardasil is $2.28 billion, while our estimate is $2.33 billion.

Sales of Gardasil vaccine have been growing in the double-digit range for the past several years. Merck expects Gardasil growth to benefit from increased supply as it is investing in expanding manufacturing capacity, greater penetration in the low- and middle-income markets and expansion to broader age cohorts like the mid-adult segment.

The company is consistently investing in M&A activity to strengthen its pipeline. In March, Merck completed its previously announced agreement to acquire Harpoon Therapeutics. The acquisition has added Harpoon Therapeutics’ lead pipeline candidate, HPN328, a T cell engager targeting delta-like ligand 3 (DLL3). HPN328 is currently being evaluated in a phase I/II study in certain patients with small cell lung cancer (SCLC) and other neuroendocrine tumor types.

Merck also has some key new products lined up for launch. Between 2025 and 2030, Merck expects eight potential new product approvals. We believe that among these, V116 and Winrevair have the potential to generate significant revenues for Merck over the long term. Winrevair (sotatercept) was approved for pulmonary arterial hypertension in March 2024. V116 is Merck’s 21-valent pneumococcal conjugate vaccine, which is under priority review in the United States, with an FDA decision scheduled for Jun 17, 2024.

Overall, the strong sales performance of Keytruda and Gardasil, regular strategic M&A activity, and an attractive pipeline (including Keytruda) are some of the reasons that makes the stock attractive despite concerns about Merck’s ability to grow its non-oncology business ahead of Keytruda’s loss of exclusivity later in the decade.

Earnings Surprise History

This large drugmaker beat earnings expectations in each of the trailing four quarters. The company delivered a four-quarter earnings surprise of 38.17%, on average.

Merck & Co., Inc. Price and EPS Surprise

Merck & Co., Inc. Price and EPS Surprise

Merck & Co., Inc. price-eps-surprise | Merck & Co., Inc. Quote

Merck’s stock has risen 8.5% in the past year compared with an increase of 13.0% for the industry.

 

Zacks Investment Research
Image Source: Zacks Investment Research

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Merck this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here.

Earnings ESP: Merck’s Earnings ESP is -1.16% as the Most Accurate Estimate is pegged at $1.99 per share, while the Zacks Consensus Estimate is pegged higher at $2.01 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Merck has a Zacks Rank #3.

Stocks to Consider

Here are some biotech stocks that have the right combination of elements to beat on earnings this time around:

Fate Therapeutics FATE has an Earnings ESP of +2.53% and a Zacks Rank #3.

Fate Therapeutics’ stock has declined 24.5% in the past year. Fate Therapeutics topped earnings estimates in each of the last four quarters. FATE has a four-quarter earnings surprise of 28.86%, on average.

Novavax NVAX has an Earnings ESP of +7.34% and a Zacks Rank #3.

Novavax’s stock has declined 50.9% in the past year. Novavax beat earnings estimates in two of the last four quarters while missing in the other two. NVAX has a four-quarter negative earnings surprise of 4.31%, on average.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Merck & Co., Inc. (MRK) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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