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Merck (MRK) to Report Q4 Earnings: Is a Beat in the Offing?

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·5 min read
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Merck & Co., Inc. MRK is set to report fourth-quarter and full-year 2019 results on Feb 5, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 20.8%.

Merck’s performance has been pretty impressive, with the company exceeding earnings expectations in all the trailing four quarters. The four-quarter positive earnings surprise was 12.51%, 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 shares have risen 11.1% in the past year compared with 10.2% increase for the industry.


Factors to Consider

Merck’s new products like cancer drug Keytruda, Gardasil vaccine and Bridion injection are likely to have driven the top line in the to-be-reported quarter backed by strong demand trends. Alliance revenues from Lynparza and Lenvima may have contributed to higher oncology sales. Please note that Merck markets Lynparza in partnership with AstraZeneca AZN. Strong performance in international markets, especially China, is likely to have driven the top-line further.

However, the top line is expected to reflect the impact of loss of exclusivity for some products, biosimilar competition for Remicade in Merck’s marketing territories and competitive pressure for the diabetes franchise (Januvia/Janumet) and currency headwinds.Merck markets Remicade in partnership with J&J JNJ.

Keytruda sales might have been driven by continued strong momentum in first-line lung cancer indication and launch in newer indications, namely renal cell carcinoma and adjuvant melanoma.

In the fourth quarter, Keytruda gained approvals in China for two non-small cell lung cancer indications and in Europe for first-line head/neck cancer. The Zacks Consensus Estimate for Keytruda’s sales is $3.22 billion.

Strong demand in most markets has been driving sales of Bridion (sugammadex) Injection – a trend that most likely continued in the fourth quarter. The Zacks Consensus Estimate for Bridion is $294 million.

Higher demand in China, Europe and the United States is likely to have benefited Gardasil sales in the fourth quarter. In October, Merck borrowed doses of Gardasil from CDC stockpile to support routine vaccinations in the United States, and to free up some manufacturing capacity to make doses for ex-U.S. markets. At the third-quarter conference call, the company said that the stockpile borrowing is expected to hurt fourth-quarter sales by approximately $120 million.The Zacks Consensus Estimate for Gardasil is $979 million.

Animal health franchise is expected to have done well in the fourth quarter, driven by higher sales of its companion animal and livestock products.

In December, the FDA granted approval to Merck’s investigational vaccine for Ebola virus disease, Ervebo.Ervebo was approved in Europe in November. We expect management to discuss the vaccine’s commercialization plans at the fourth-quarter conference call.

Key Q4 Developments

In the fourth quarter, Merck announced a definitive deal to buy Massachusetts-based ArQule for $20 per share in cash for an approximate total equity value of $2.7 billion. The buyout was closed in January. The acquisition is expected to strengthen Merck’s oncology pipeline with the addition of some strategic assets, most notably, ARQ 531, ArQule’s novel, oral Bruton’s tyrosine kinase inhibitor. ARQ 531 is currently being evaluated in a phase II dose expansion study for the treatment of B-cell malignancies.

Earnings Whispers

Our proven model predicts an earnings beat for Merck this time around because it has the right combination of 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: Earnings ESP, which represents the difference between the Most Accurate Estimate of $1.15 and the Zacks Consensus Estimate of $1.14, is +1.05%. 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

Another large drug/biotech stock that has the right combination of elements to beat on earnings this time around is Gilead Sciences GILD. It has an Earnings ESP of +1.55% and a Zacks Rank #3. The company is scheduled to release results on Feb 4. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Merck & Co., Inc. (MRK) : Free Stock Analysis Report
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