Merck (NYSE: MRK) is scheduled to report its Q4 2021 results on Thursday, Feb 3. We expect MRK stock to trend higher in the near term due to an upbeat Q4, with revenue and earnings expected to be comfortably above the consensus estimates, driven by contribution from its Covid-19 antiviral pill, and continued uptick in sales of its key drugs, including Keytruda and Gardasil. Not only do we expect Merck to post upbeat Q4 results, we find its stock to to be undervalued at its current levels, as we discuss in the sections below. Our interactive dashboard analysis on Merck’s Earnings Preview has additional details.
(1) Revenues expected to be above the consensus estimates
- Trefis estimates Merck’s Q4 2021 revenues to be around $13.9 billion, compared to the $13.2 billion consensus estimate.
- The company’s overall revenue growth is likely to be bolstered from sales of its Covid-19 antiviral pill.
- Merck’s top-selling drug – Keytruda – saw its sales rise 21% to $12.6 billion for the nine month period ending Sep 2021. This trend is expected to continue in the near term.
- Gardasil sales were up a solid 41% for the nine month period ending Sep 2021, and it is likely to see strong sales in 2022, buoyed by its growth outside of the U.S., primarily China. However, the overall sales growth for Gardasil may be adversely impacted in Q1 22, given the spread of Omicron.
- The company’s animal health business has also been doing well with 22% y-o-y gains for the first three quarters of 2021, 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 comfortably above the consensus estimates
- Merck’s Q4 2021 adjusted earnings per share (EPS) is expected to be $1.63 per Trefis analysis, comfortably above the consensus estimate of $1.52.
- Merck’s adjusted net income of $4.4 billion in Q3 2021 reflected a 27% rise from its $3.5 billion figure in the prior-year quarter led by higher revenues as well as expansion of operating margins on the back of lower R&D expenses.
- While inflationary headwinds and supply chain constraints pose a threat to margin expansion in the near term, we expect operating margins to trend higher over the coming years.
- For the full year 2022, we expect the adjusted EPS to be higher at $7.47, compared to an estimated $5.85 in 2021.
(3) MRK stock looks undervalued currently
- We estimate Merck’s Valuation to be $100 per share, which is 23% above the current market price of $81.
- This represents a P/EBITDA multiple of 20x based on Merck EBITDA for the last twelve months.
- Now, if the company reports upbeat results, as we anticipate, along with 2022 guidance better than the street estimates, it is likely that the P/EBITDA multiple will be revised upward, resulting in even higher levels for MRK stock.
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