Merck’s Q4 Earnings And What Lies Ahead For The Company In 2019
Merck (NYSE:MRK) recently reported its Q4 2018 earnings, which were slightly below our estimates. The company’s top line and bottom line grew in mid-single-digits in Q4, led by a continued ramp up in Keytruda, and Gardasil sales. Looking forward, we continue to believe that Keytruda, along with Gardasil, will be the key growth driver for Merck in the near term. The company will likely see steady growth in its animal health business, and alliance revenues from Lynparza and Lenvima. We have created an interactive dashboard analysis ~ A Quick Snapshot of Merck’s Q4 Performance And Trefis Estimates For The Full Year 2019. You can adjust various drivers to see the impact on the company’s earnings and price estimate. Below we discuss our forecast.
Expect Revenues To Grow In Low Single-Digits
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We expect Merck’s overall revenue to grow in low single-digits to $43.4 billion in 2019, which is toward the lower end of the company’s revenue guidance. While oncology, vaccines, and the animal health business should see steady growth, some of the other segments, such as immunology and virology, will likely see a double-digit decline in sales. The decline in sales of these segments can be attributed to increased competition, and loss of marketing exclusivity, among other factors. On the upside, Keytruda will likely continue to lead the growth for Merck. The drug is the market leader in renal oncology, and it now has 15 approvals in the U.S. for 10 different types of tumors. Keytruda’s full year sales were north of $7 billion in 2018, and its peak sales are estimated to be north of $15 billion by 2022. Gardasil is a vaccine used for prevention against HPV (human papillomavirus) virus, which has been linked to certain types of cancers. It has seen strong sales growth of 34% for the full year 2018, and will likely see double-digit gains in the near term. This can be attributed to increased immunization across various countries. Europe, as well as China, will likely drive the drug’s future sales growth.
Among other segments, animal health saw high single-digit growth in 2018, and it will likely see similar or higher growth in 2019 as well, primarily led by companion animals. The company is seeing higher demand for vaccines, as well as poultry products, which are aiding the segment revenue growth, and this trend will continue in the near term, in our view. Merck’s alliance revenues from oncology drugs, Lynparza and Lenvima, will also trend higher and aid the overall top line growth in 2019. Note that Lenvima received the U.S. FDA, European Union, and China approval for hepatocellular carcinoma in 2018. Lynparza also secured the U.S. FDA approval for ovarian cancer in December 2018. This should aid the alliance revenues in the near term.
Overall, we forecast the company’s adjusted earnings to be $4.60 per share in 2019, which is towards the lower end of the company’s guidance of $4.57 to $4.72, and reflects a mid-single-digit y-o-y growth. Our price estimate of $77 for Merck is based of a 16.7x forward price to earnings multiple.
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