Merck Q4 Earnings Preview: Can MRK Beat Average Consensus Earnings?

February 3rd, 2020 by Trefis Team
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MRK: Merck logo
MRK
Merck

Merck is slated to release its Q4 and full-year 2019 results on February 5, 2020. We don’t expect the company to beat, but rather meet, the average consensus EPS of $5.17. For full year 2019, Trefis estimates that the company will report:

  • Revenues of $46.6 billion, reflecting 10.1% y-o-y growth, primarily driven by the company’s blockbuster cancer drug ~ Keytruda. Our revenue forecast is lower than the consensus estimate of $47.0 billion.
  • EPS figure will likely increase to $5.17 on an adjusted basis, primarily due to higher revenues, and an expected drop in outstanding shares, as compared to the previous year. Our EPS figure forecast is in line with the average consensus estimate.

We believe that an in-line earnings for full year 2019 will likely result in a positive movement in Merck’s stock price, post earnings announcement.  In fact, our forecast indicates that Merck’s valuation is $93 a share, which is roughly 7% above the current price of ~$87. Our interactive dashboard analysis on Merck’s Pre-Earnings has more details about our expectations, parts of which we highlight below.

(1) Revenues Expected To Be Slightly Lower Than The Consensus Estimates

  • Trefis estimates Merck’s 2019 revenues to be $46.6 billion, slightly lower than the average consensus estimate of $47.0 billion.
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Mature & Others         $12.3 Bil (26%)
Anti-Infective              $11.5 Bil (25%)
Oncology                      $11.1 Bil (24%)
Alimentary                  $5.5 Bil (12%)
Musculoskeletal         $1.9 Bil (4%)
Contraceptives           $1.8 Bil (4%)
Cardiovascular           $1.3 Bil (3%)
Respiratory                 $1.1 Bil (2%)
————————————————-
TOTAL                           $46.6 Bil
Consensus                     $47.0 Bil
Surprise                         $(0.4) Bil

Note: Numbers may not add up due to rounding. 

  • Total revenues have increased at an average annual rate of 3.1% from $39.8 billion in 2016 to $42.3 billion in 2018, primarily driven by the company’s oncology segment. However, it is expected to see a 10.1% growth in 2019, primarily due to higher Keytruda sales after it received several regulatory approvals for multiple indications.
  • See Merck Revenues – How Does MRK Make Money? We provide an interactive, in-depth view of the company’s revenues along with our forecasts.
  • Key for 2020: Merck’s revenue will grow 5.3% on average over 2019-2020, led by higher Keytruda sales, partly offset by decline in sales of older drugs, especially in 2020.

(2) EPS Likely To Be In Line With The Consensus Estimates

  • Merck’s 2019 adjusted earnings per share (EPS) is expected to be $5.17 per Trefis analysis, in line with the average consensus estimate.

Total Revenues        $46.6 Bil
– Total Expenses      $33.1 Bil
——————————————-
Net Income              $13.4 Bil
÷ No. of Shares       2.6 Bil
——————————————-
EPS                           $5.17
Consensus               $5.17
Surprise                   $0.00

Note: Numbers may not add up due to rounding. 

  • Adjusted EPS is expected to grow from $4.34 in 2018 to $5.17 in 2019, primarily driven by a growth in revenues.
  • As we forecast Merck’s revenues to grow 10.1%, and expenses to grow 8.0%, this will result in a 130 bps increase in the company’s adjusted net income margin figure from 27.5% in 2018 to 28.8% in 2019, as detailed in the Merck’s pre-earnings dashboard.
  • See Merck Expenses – How Does MRK Spend Its Money? We provide an interactive, in-depth view of the company’s expenses, and earnings margins.
  • Key for 2020: We believe that revenue will grow in mid-single-digits on average, while expenses could grow at a slower pace when compared to revenues, resulting in the net income margin figure to increase to 30.1% in 2020, compared to 27.5% in 2018. We currently forecast Merck’s 2020 EPS to be $5.52 on an adjusted basis.

(3) Stock Price Estimate ~ 7% Higher Than Market Price

  • Trefis’ forecast for Merck’s full year 2019 earnings is in line with the market expectations, but P/E multiple is slightly higher than the consensus, working out to a fair value of $93 for Merck’s stock, which is roughly 7% higher than the current market price of around $87.
  • A trailing P/E multiple of 18.0x looks appropriate for Merck’s stock, which is slightly higher than the current implied P/E multiple of 16.5x.
  • We use our full discounted cash flow model for Merck to arrive at a P/E multiple of 18.0x for a price estimate of $93.
  • Merck’s P/E multiple has been higher than its peers over the past few years.
  • Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year.

See all Trefis Price Estimates and Download Trefis Data here

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