Earnings Beat In Cards For Merck’s Q1?

April 28th, 2021 by Trefis Team
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Merck (NYSE: MRK) is scheduled to report its Q1 2021 results on Thursday, April 29. We expect the company to likely post revenue and earnings above the consensus estimates, led by continued expansion of Keytruda, and a recovery in the company’s vaccines as well as the animal health business. Merck should see an overall pickup in demand due to an increase in hospital visits with economies opening up gradually. We expect the company to navigate well based on these trends over the latest quarter.

Furthermore, our forecast indicates that its valuation is $101 per share, which is 31% above the current market price of around $77. Our interactive dashboard analysis on Merck’s Pre-Earnings has additional details.

(1) Revenues expected to be above the consensus estimates

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Trefis estimates Merck’s Q1 2021 revenues to be around $12.8 billion, slightly above the $12.7 billion consensus estimate. Now that the economies are opening up with vaccination programs underway in multiple countries, pharmaceutical companies will likely benefit from an increase in the volume of new patient starts. For Merck, Keytruda remains the key growth driver in the near term, with 2021 annual sales projected to be $17 billion, per Trefis estimates. Earlier in 2020, Merck’s vaccines, such as Gardasil and ProQuad saw pressure on sales as the focus remained on Covid-19. However, this trend is expected to reverse and Gardasil is likely to see higher sales growth going forward. Merck’s Q4 2020 sales were up 5% y-o-y to $12.5 billion, primarily reflecting continued growth in Keytruda sales, a strong rebound in Gardasil sales, as well as higher Animal Health products sales. Our dashboard on Merck Revenues offers more details on the company’s segments.

2) EPS likely to be slightly above the consensus estimates

Merck’s Q1 2021 adjusted earnings per share (EPS) is expected to be $1.65 per Trefis analysis, slightly above the consensus estimate of $1.63. Merck’s adjusted net income of $3.4 billion in Q4 2020 reflected a 12% rise from its $3.0 billion figure in the prior-year quarter, due to margin expansion. The margins will likely improve further going forward, as the current Covid-19 crisis subsides. For the full year 2021, we expect the adjusted EPS to be higher at $6.60 compared to $5.94 in 2020.

(3) Stock price 30% above the current market price

Going by our Merck’s Valuation, with an EPS estimate of $6.60 and a P/E multiple of 15x in 2021, this translates into a price of $101, which is 31% above the current market price of around $77. In fact, at the current market price of $77, MRK stock is trading at just 12x its 2021 EPS estimate of $6.60. The 12x figure compares with levels of over 17x seen in 2018 and 2019, and a 14x figure seen as recently as late 2020. We continue to believe that MRK stock is significantly undervalued and it can offer high returns going forward.

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.

While MRK stock can see much higher levels, it is helpful to see how its peers stack up. Check out Merck Peer Comparisons to see how MRK stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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