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Merck Q2 Preview: Double-Digit Earnings Growth in Store?

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The Zacks – Large Cap Pharmaceuticals Industry has been hot as of late, increasing more than 10% in value over the last month vs. the S&P 500’s 6.3% return. In fact, the industry is beating the general market on a multitude of timeframes, as illustrated in the chart below.

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Zacks Investment Research


Image Source: Zacks Investment Research

One company residing in the sector slated to release quarterly results before the opening bell on July 28th is the widely-known Merck & Co. MRK.

Merck is a global healthcare company that delivers innovative health solutions through prescription medicines, vaccines, biologic therapies, and animal health products.

In addition, the company is a Zacks Rank #2 (Buy) with an overall VGM Score of an A. Let’s take a look at how the company shapes up heading into its quarterly release.

Share Performance & Valuation

Year-to-date, Merck shares are well in the green, increasing nearly 20% in value and easily outperforming its Zacks Industry.

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Zacks Investment Research


Image Source: Zacks Investment Research

Shares have upheld their strength, increasing nearly 6% in value over the last three months.

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Zacks Investment Research


Image Source: Zacks Investment Research

The substantial share performance is undoubtedly inspiring, especially in a market where most stocks reside in the red year-to-date. Buyers have defended the stock all year long.

In addition, Merck sports enticing valuation metrics. Its 12.3X forward earnings multiple is well below its five-year median of 14.4X and represents an enticing 31% discount relative to the S&P 500.

MRK sports a Style Score of a B for Value.

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Zacks Investment Research


Image Source: Zacks Investment Research

Quarterly Estimates

Analysts have been quiet over the last 60 days, with the Consensus Estimate Trend remaining unchanged and zero estimate revisions for the quarter to be reported. The $1.68 Zacks Consensus EPS Estimate reflects a sizable 30% increase in quarterly earnings year-over-year.

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Zacks Investment Research


Image Source: Zacks Investment Research

The top-line is also in exceptional shape; the $13.9 billion quarterly revenue estimate pencils in a substantial 22% uptick from year-ago sales of $11.4 billion. The chart below illustrates Merck’s revenue on a quarterly basis.

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Zacks Investment Research


Image Source: Zacks Investment Research

Quarterly Performance & Market Reactions

Merck has been on a hot earnings streak as of late, exceeding both top and bottom-line estimates in its previous three quarters. In addition, in its latest quarter, Merck recorded a 6% top-line beat and a sizable 18% bottom-line beat.

The market has reacted poorly to EPS misses but positively towards beats – Over its last three EPS beats, shares have moved upwards twice. Over its last three bottom-line misses, shares have moved downwards each time.

Dividends

The company’s dividend metrics are worth a highlight as well. Merck’s annual dividend yield sits on the high side at 3.1%, much higher than that of the S&P 500.

In addition, the company has increased its dividend an impressive six times over the last five years, with a five-year annualized dividend growth rate of a sizable 9.4%.

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Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

Merck shares have been hot year-to-date, top and bottom-line estimates for the quarter to be reported display serious growth, and the company sports solid valuation metrics.

In addition, the company sports a Zacks Rank #2 (Buy), has reported quarterly results above expectations as of late, and has strong dividend metrics.

Heading into the quarterly report, MRK has an Earnings ESP Score of -0.7%.


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