Merck Beats Q1 Expectations but Lowers 2025 Financial Outlook

Merck (NYSE: MRK) delivered strong first-quarter results, exceeding Wall Street’s predictions for both revenue and earnings. The company reported revenue of $15.53 billion and adjusted earnings per share of $2.22, surpassing consensus estimates of $15.31 billion and $2.14, respectively. Sales growth for Keytruda contributed to this performance. However, a significant decline in Gardasil sales, especially in China, posed challenges. Merck also adjusted its 2025 outlook downward, projecting $200 million in tariff-related costs.

After the earnings announcement on April 25th, Merck’s (MRK) stock price rose by 4%. Yet, on a year-to-date basis, MRK has underperformed the S&P 500 Health Care index, declining 17% against the index’s modest gain of 0.2%. This low performance partly results from challenges with Gardasil in the Chinese market due to softening demand.

Q1 Performance Overview for Merck

During the first quarter, Merck reported revenue of $15.53 billion, reflecting a year-over-year decrease of 2%. This was despite a 4% increase in Keytruda sales, which totaled $7.2 billion. Newer drugs such as Winrevair and Capvaxive also demonstrated promising growth. In contrast, Gardasil sales fell sharply by 41% year-over-year, down to $1.3 billion, primarily due to diminished demand in China.

Merck’s adjusted gross margin showed improvement, rising by 40 basis points to reach 78%, thanks to a favorable product mix. The adjusted earnings per share were reported at $2.22. It is essential to note that the first quarter of 2024 included a $0.26 per share charge related to Harpoon Therapeutics’ acquisition, which affects the year-over-year comparison.

Looking forward, Merck insists on maintaining its revenue guidance for 2025, forecasting sales between $64.1 billion and $65.6 billion. However, the company has lowered its adjusted earnings per share forecast to a range of $8.82 to $8.97, considering the recent $200 million tariff costs.

Implications for MRK Stock

Although Merck’s Q1 results were solid, the revised outlook indicates a modest reduction in margins and earnings. Our analysis values Merck stock at $109 per share, suggesting a potential 30% upside from the current trading price of $83. At present, MRK trades at a price-to-earnings (P/E) ratio of 11 times its trailing earnings per share of $7.79, which is below the stock’s historical average P/E of around 14 times.

The continued growth of Keytruda and the momentum of Merck’s newer drug launches present an attractive investment opportunity for long-term investors. Furthermore, recent strategic acquisitions—such as Prometheus Biosciences, Acceleron Pharma, Imago BioSciences, Harpoon Therapeutics, and EyeBio—are expected to enhance revenue and earnings growth moving forward.

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