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Merck (MRK) to Report Q3 Earnings: Is a Beat in the Cards?

Zacks Equity Research
·5 min read

We expect Merck MRK to beat expectations when it reports third-quarter 2020 results on Oct 27, before market open. In the last-reported quarter, the company delivered an earnings surprise of 20.18%.

The large drugmaker’s performance has been pretty impressive, with the company exceeding earnings expectations in each of the trailing four quarters. The company delivered a four-quarter earnings surprise of 12.66%, on average.

Merck Co., Inc. Price and EPS Surprise

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 declined 13.9% this year so far compared with a decrease of 2.5% for the industry



Factors to Consider

For the second half of 2020, Merck expects better sales growth than the first half helped by improved demand trends of drugs hurt by COVID-19-related business disruptions in the first half. Improved business conditions coupled with Merck’s digital and other transformation efforts are likely to have supported better sales growth in the third quarter.

In oncology drugs, Keytruda sales are likely to have been driven by continued strong momentum in first-line lung cancer indication and launch in newer indications. The Zacks Consensus Estimate for Keytruda’s sales is $3.63 billion. Alliance revenues from Lynparza and Lenvima may have contributed to higher oncology sales. Please note that Merck markets Lynparza in partnership with AstraZeneca AZN.

In the hospital specialty portfolio, sales of Bridion Injection are likely to have declined due to the widespread reduction in elective surgeries amid coronavirus-related mobility restrictions. However, sales could have been better than the second quarter. The Zacks Consensus Estimate for Bridion is $255 million.

Meanwhile, the top line is expected to reflect the impact of loss of U.S. market exclusivity for Remicade, Noxafil, Emend, Cubicin, Nuvaring and Vytorin and competitive pressure for the diabetes franchise (Januvia/Janumet).

Merck’s vaccines portfolio is likely to reflect the impact of COVID-19 related business disruption, including Gardasil and other vaccines. However, on the second-quarter earnings call, the company said that it had witnessed significant increase in wellness visits beginning in late April for children and in late June for adults in the United States. Vaccine sales are likely to have been better than the second quarter. The Zacks Consensus Estimate for Gardasil is $1.14 billion.

In the Animal health franchise, reduced veterinary visits and decreased protein and milk consumption due to restaurant and school closures and COVID-19 related reduced veterinary access hurt sales in the second quarter. However, the impact of COVID-19 on the Animal Health unit in the quarter was less than anticipated as veterinarian offices opened earlier than initially expected and stay-at-home restrictions were lifted sooner than anticipated. Sales in the Animal Health unit are likely to have improved in the third quarter.

Operating expenses are expected to be higher due to higher R&D costs related to its COVID-19 program

Importantly, investors will also focus on whether Merck provides an updated business outlook for 2020 to update on the impact of coronavirus.

Key Recent Developments

In September, Merck announced two cancer deals with Seagen SGEN. The first deal is for the joint global development and potential commercialization of Seagen’s antibody-drug conjugate ladiratuzumab vedotin, which is in mid-stage development for breast cancer and other solid tumors. The companies plan to study ladiratuzumab vedotin as monotherapy as well as in combination with Keytruda in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors.

In another deal, Merck acquired an exclusive license to commercialize Seagen’s newly approved HER2-positive breast cancer drug, Tukysa in Asia, the Middle East and Latin America and other regions outside of the United States, Canada and Europe. Seagen will retain commercialization rights in the United States, Canada and Europe.

Earnings Whispers

Our proven model predicts an earnings beat for Merck in the soon-to-be-reported quarter because it has the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise.

Earnings ESP: Merck’s Earnings ESP is +2.60% as the Zacks Consensus Estimate of $1.44 is lower than the Most Accurate Estimate of $1.48. 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.

Another Stock to Consider

Here is another large drug stock that has the right combination of elements to beat on earnings this time around

GlaxoSmithKline GSK has an Earnings ESP of +7.23% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

5 Stocks Set to Double

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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AstraZeneca PLC (AZN) : Free Stock Analysis Report
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