The yearly results for Merck & Co., Inc. (NYSE:MRK) were released last week, making it a good time to revisit its performance. Merck reported in line with analyst predictions, delivering revenues of US$47b and statutory earnings per share of US$3.81, suggesting the business is executing well and in line with its plan. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
Following the latest results, Merck's 15 analysts are now forecasting revenues of US$49.7b in 2020. This would be a modest 6.2% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to bounce 28% to US$4.89. Before this earnings report, analysts had been forecasting revenues of US$49.5b and earnings per share (EPS) of US$4.79 in 2020. So the consensus seems to have become somewhat more optimistic on Merck's earnings potential following these results.
The consensus price target was unchanged at US$98.17, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Merck at US$107 per share, while the most bearish prices it at US$90.00. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that analysts have a clear view on its prospects.
Further, we can compare these estimates to past performance, and see how Merck forecasts compare to the wider market's forecast performance. Analysts are definitely expecting Merck's growth to accelerate, with the forecast 6.2% growth ranking favourably alongside historical growth of 2.3% per annum over the past five years. Compare this with other companies in the same market, which are forecast to grow their revenue 5.2% next year. Merck is expected to grow at about the same rate as its market, so it's not clear that we can draw any conclusions from its growth relative to competitors.
The Bottom Line
The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around Merck's earnings potential next year. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Merck. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Merck analysts - going out to 2024, and you can see them free on our platform here.
It might also be worth considering whether Merck's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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