What’s Fueling Merck’s Stock Price Growth?

-7.29%
Downside
132
Market
122
Trefis
MRK: Merck logo
MRK
Merck

Merck’s (NYSE:MRK) stock price grew over 50% from around $56 levels in 2017 to around $84 in 2019, primarily driven by revenue growth and expansion of the P/E multiple. Merck’s stock price growth was higher than <10% growth seen for Pfizer and Johnson & Johnson’s stock over the same period. This outperformance can primarily be attributed to the company’s success with its cancer drug Keytruda, which has received several regulatory approvals for multiple indications, and it is expected to generate over $10 billion in sales in 2019.

In this note we focus on the factors that drove growth for Merck’s stock between 2017 and 2019. We can break down the movement in the stock price into three factors: 1. growth in revenue, 2.change in net income margin and share count, and 3. expansion of P/E multiple. You can look at our interactive dashboard analysis ~ What Factors Drove Over 50% Growth In Merck’s Stock Between 2017 And 2019? ~ for more details.

#1. Merck Seeing Steady Revenue Growth

  • Revenues Are Expected To Grow 16% From $40.1 Billion In 2017 To An Estimated $46.6 Billion In 2019. The Biggest Change In Revenue Was Driven By The Company’s Oncology Drugs Segment.
  • Merck’s oncology drugs portfolio will likely add $6.5 billion in sales between 2017 and 2019, driven by higher Keytruda sales (Look how important Keytruda is for Merck).
  • Look at our interactive dashboard analysis for an in depth view on on Merck’s revenues.
Relevant Articles
  1. At $100 Does Merck Stock Have Room For Growth?
  2. Should You Pick Merck Stock Over Coca-Cola?
  3. Should You Buy Merck Stock After An Upbeat Q2?
  4. How Has Merck Stock Performed During The 2022-23 Inflation Shock?
  5. Is Merck Stock A Better Pick Over ABBV?
  6. Should You Buy Merck Stock At $120?

Merck’s Revenue Growth Has Been Relatively More Stable Than Some of Its Peers

#2. Adjusted Net Income Grew At A Faster Pace Compared To Merck’s Revenues, Due To Slower Growth In Expenses

  • Merck’s adjusted net income will likely grow from $10.9 billion in 2017 to $13.4 billion in 2019.
  • This can be attributed to margin expansion and modest growth in revenues.
  • Total Adjusted Expenses will likely grow from $29.2 billion in 2017 to $33.1 billion in 2019, reflecting an average annual growth rate of 13%, which compares with a 16% figure for revenues.
  • We discuss the factors that impacted the margin in the below section.

Total Adjusted Expenses Will Likely Grow From $29.2 Billion In 2017 To $33.1 Billion In 2019

  • Notable Change Can Be Seen Primarily In The Income Taxes, Which Were Impacted By The TCJA (Tax Cuts & Jobs Act), And Its Related Adjustments In Non-GAAP Items.
  • Look at our interactive dashboard analysis for in depth view on Merck’s non-adjusted expenses.

Adjusted EPS Has Also Seen Steady Growth, Led By Higher Net Income And Lower Share Count

  • Merck’s adjusted EPS grew from $3.98 in 2017 to $4.34 in 2018, and it is estimated to be $5.17 in 2019, driven by higher adjusted net income and lower share count.
  • No. of shares declined from 2.7 billion to 2.6 billion over the same period, amid the company’s authorized share buyback plan of $10.0 billion from October 2018.

#3. Price To Earnings Multiple for Merck Expanded Between 2017-2019, And It Has Been In Line With That of Johnson & Johnson But Higher Than That of Pfizer And Bristol-Myers Squibb

  • Merck’s P/E multiple expanded from 12.9x in 2017 to 15.3x in 2019.
  • This compares with Johnson & Johnson, which saw its P/E multiple contract from 15.9x to 15.1x over the same period. The stock price corrected in 2019, amid multiple litigations filed against the company.
  • Pfizer’s P/E multiple expanded from 11x to 13x over the same period, amid approvals for its biosimilars.
  • Note these multiples are arrived by using the average stock prices between Sep 15 and Dec 15 for the respective year, and adjusted earnings reported (or expected) for the following year.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Data

Like our charts? Explore example interactive dashboards and create your own.