Was Merck & Co Inc.’s (NYSE:MRK) Earnings Decline Part Of A Broader Industry Downturn?
For investors with a long-term horizon, examining earnings trend over time and against industry peers is more insightful than looking at an earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Merck & Co Inc. (NYSE:MRK) useful as an attempt to give more color around how Merck is currently performing. Check out our latest analysis for Merck
How Well Did MRK Perform?
For the purpose of this commentary, I like to 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 technique allows me to analyze different companies on a more comparable basis, using the latest information. For Merck, its most recent earnings (trailing twelve month) is US$2.39B, which compared to last year’s level, has taken a dive by a substantial -38.93%. Since these values may be somewhat nearsighted, I have determined an annualized five-year value for MRK’s net income, which stands at US$5.84B This doesn’t look much better, as earnings seem to have consistently been deteriorating over the longer term.
Why could this be happening? Let’s examine what’s occurring with margins and whether the whole industry is facing the same headwind. In the last few years, Merck has, on average, delivered negative top- and bottom-line growth. As revenues fell by more, expenses have been lowered in order to maintain margins – not the most sustainable operating activity. Scanning growth from a sector-level, the US pharmaceuticals industry has been growing its average earnings by double-digit 13.53% in the past twelve months, and a more muted 9.89% over the past five years. This means whatever uplift the industry is enjoying, Merck has not been able to leverage it as much as its industry peers.
What does this mean?
Though Merck’s past data is helpful, it is only one aspect of my investment thesis. Typically companies that experience a prolonged period of diminishing earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry growth and disruption. I recommend you continue to research Merck to get a better picture 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 trailing twelve months from 31 December 2017. 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.
