With A -47.6% Earnings Drop, Is Merck & Co Inc’s (NYSE:MRK) Performance A Concern?
Assessing Merck & Co Inc’s (NYSE:MRK) past track record of performance is a useful exercise for investors. It allows us to understand whether the company has met or exceed expectations, which is a great indicator for future performance. Below, I assess MRK’s latest performance announced on 30 September 2017 and evaluate these figures to its historical trend and industry movements. View our latest analysis for Merck
Was MRK weak performance lately part of a long-term decline?
I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This allows me to assess different stocks in a uniform manner using new information. “For Merck, its “, most recent earnings is $2,845.0M, which, against the previous year’s figure, has taken a dive by a large -48.20%. Given that these figures may be somewhat short-term thinking, I have created an annualized five-year figure for MRK’s earnings, which stands at $5,629.4M. This doesn’t look much better, since earnings seem to have consistently been deteriorating over the longer term.
Why is this? Well, let’s look at what’s going on with margins and whether the whole industry is experiencing the hit as well. Over the last couple of years, revenue growth has not been able to keep up with, earnings, which suggests that Merck’s bottom line has been driven by unmaintainable cost-cutting. Inspecting growth from a sector-level, the US pharmaceuticals industry has been growing, albeit, at a unexciting single-digit rate of 6.66% over the previous twelve months, and a substantial 11.75% over the past five years. This means that whatever uplift the industry is benefiting from, Merck has not been able to gain as much as its industry peers.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Generally companies that face a prolonged period of reduction in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the recent industry growth and disruption. I recommend you continue to research Merck to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for MRK’s future growth? Take a look at our free research report of analyst consensus for MRK’s outlook.
2. Financial Health: Is MRK’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
