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Why Merck (MRK) is Poised to Beat Earnings Estimates Again

Zacks Equity Research

If you are looking for a stock that has a solid history of beating earnings estimates and is in a good position to maintain the trend in its next quarterly report, you should consider Merck (MRK). This company, which is in the Zacks Large Cap Pharmaceuticals industry, shows potential for another earnings beat.

When looking at the last two reports, this pharmaceutical company has recorded a strong streak of surpassing earnings estimates. The company has topped estimates by 14.13%, on average, in the last two quarters.

For the last reported quarter, Merck came out with earnings of $1.30 per share versus the Zacks Consensus Estimate of $1.16 per share, representing a surprise of 12.07%. For the previous quarter, the company was expected to post earnings of $1.05 per share and it actually produced earnings of $1.22 per share, delivering a surprise of 16.19%.

Price and EPS Surprise

For Merck, estimates have been trending higher, thanks in part to this earnings surprise history. And when you look at the stock's positive Zacks Earnings ESP (Expected Surprise Prediction), it's a great indicator of a future earnings beat, especially when combined with its solid Zacks Rank.

Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce a positive surprise nearly 70% of the time. In other words, if you have 10 stocks with this combination, the number of stocks that beat the consensus estimate could be as high as seven.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

Merck has an Earnings ESP of +0.10% at the moment, suggesting that analysts have grown bullish on its near-term earnings potential. When you combine this positive Earnings ESP with the stock's Zacks Rank #3 (Hold), it shows that another beat is possibly around the corner. The company's next earnings report is expected to be released on October 29, 2019.

When the Earnings ESP comes up negative, investors should note that this will reduce the predictive power of the metric. But, a negative value is not indicative of a stock's earnings miss.

Many companies end up beating the consensus EPS estimate, but that may not be the sole basis for their stocks moving higher. On the other hand, some stocks may hold their ground even if they end up missing the consensus estimate.

Because of this, it's really important to check a company's Earnings ESP ahead of its quarterly release to increase the odds of success. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.


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