[Updated: Nov 3, 2021] MRK Stock Update
Merck (NYSE: MRK) recently reported its Q3 results, which were better than our estimates. The company reported sales of around $13.2 billion (up 20% y-o-y), compared to our estimate of $12.2 billion. While the Keytruda sales saw a 22% rise to $4.5 billion, Gardasil sales surged 68% to $2.0 billion. The company’s Animal Health business also saw a 16% growth in sales. Our dashboard on Merck Revenues offers more details on the company’s segments.
Looking at the bottom-line, the company reported adjusted earnings of $1.75 per share, up 28% y-o-y, driven by both an increase in revenue as well as margin expansion. The earnings were comfortably above our forecast of $1.48 per share and the $1.54 per share consensus estimate. The company managed to leverage sales growth, along with increased sales of high-margin products, which led to margin expansion. Lower R&D expenses also aided the margins.
Following a solid performance in Q3, Merck raised its full year outlook for sales to be in the range of $47.4 billion and $47.9 billion, compared to its earlier estimate of $46.4 billion to $47.4 billion. Looking at the bottom line, the company now expects its adjusted EPS to be in the range of $5.65 and $5.70, compared to its earlier guidance of $5.47 and $5.57. The company’s full-year outlook appears to be conservative, in our view.
Now, one important detail shared by the company’s management is around its Covid-19 treatment – Molnupiravir. Merck now expects Molnupiravir sales to be around $7 billion through 2022, including $0.5 billion to $1.0 billion sales in Q4 of this year. The sales estimate for Molnupiravir as well as an upbeat quarter cheered investors, and MRK stock is now up over 7% in a week (five trading days).
We have also updated our model following the Q3 release. We have revised the sales forecast to be around $51.8 billion, well above the company’s guidance, considering a strong sales growth for Keytruda, Gardasil, Animal Health, and a meaningful contribution from Molnupiravir in Q4. As such, we also expect adjusted EPS to be higher at $6.02, compared to our earlier estimate of $5.94. Given these changes to our revenues and earnings forecast, we have revised our Merck’s Valuation to $98 per share, based on $6.02 expected adjusted EPS and maintaining a 16x P/E multiple for 2021, implying an 11% upside from its current levels of $88.
[Updated: Oct 25, 2021] MRK Q3 Earnings Preview
Merck (NYSE: MRK) is scheduled to report its Q3 2021 results on Thursday, October 28. We expect the company to likely post revenue and earnings below the consensus estimates, as the spread of Covid-19 delta variant likely impacted the company’s overall vaccine sales growth, including that for Gardasil. That said, the opening up of economies and continued demand for animal health business, likely aided the overall sales growth for Merck. While we expect the revenue and earnings to fall below the consensus estimates, our forecast indicates that Merck’s valuation is $91 per share, which is 12% above the current market price of around $81, implying that MRK stock still has some room for growth. Our interactive dashboard analysis on Merck’s Pre-Earnings has additional details.
(1) Revenues expected to be below the consensus estimates
Trefis estimates Merck’s Q3 2021 revenues to be around $12.2 billion, compared to the $12.3 billion consensus estimate. With over half of the U.S. population fully vaccinated, and on the international front the vaccination rate is rising gradually, total procedure volume and hospital visits is on a rise and this should augur well for pharmaceutical companies, including Merck. Q3 also marked a quarter with a rise in Covid-19 cases in the U.S. due to the spread of the delta variant, and it may have impacted the vaccine sales for Merck. Gardasil sales were down in low double-digits (y-o-y) to $1.2 billion in Q3 2020, due to the impact of the pandemic. Gardasil sales stood at $0.9 billion in Q1, and $1.2 billion in Q2 of this year.
That said, Merck’s top-selling drug – Keytruda – continued to expand with 21% y-o-y growth to $8.1 billion in the first half of this year. Over the last year or so, Keytruda has continued to gain market share, and garner more regulatory approvals for expansion of its usage. The company’s animal health business has also been doing well with 25% y-o-y gains in H1, and the growth is likely to continue in the near term, given the rise in pet ownership in the U.S. to record highs of 70% of the U.S. households. Our dashboard on Merck Revenues offers more details on the company’s segments.
2) EPS likely to be slightly below the consensus estimates
Merck’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.48 per Trefis analysis, slightly above the consensus estimate of $1.54. Merck’s adjusted net income of $3.3 billion in Q2 2021 reflected a 28% rise from its $2.6 billion figure in the prior-year quarter led by higher revenues. For the full year 2021, we expect the adjusted EPS to be lower at $5.65 compared to $5.94 in 2020. Note that earnings will be lower in 2021, given the spin-off of Merck’s women’s health, biosimilars, and established brands businesses. Also, there can be near term margin pressure due to inflationary headwinds and supply chain constraints.
(3) Stock price estimate above the current market price
Going by our Merck’s Valuation, with an EPS estimate of $5.65 and a P/E multiple of 16x in 2021, this translates into a price of $91, which is nearly 12% above the current market price of around $81. The 16x figure compares with levels of over 17x seen in 2018 and 2019, and a 14x figure seen as recently as late 2020.
Earlier this month, Merck announced that its Molnupiravir pill reduces the risk of hospitalization and death by 50% for patients with mild to moderate Covid-19. The company is seeking regulatory approval for the oral pill, and once approved, it will aid the overall revenue growth for Merck in the quarters to come.
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.
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