Merck (NYSE: MRK) is scheduled to report its Q1 2022 results on Thursday, Apr 28. We expect MRK stock to trend higher in the near term due to a strong Q1, with revenue falling in-line and earnings expected to be comfortably above the consensus estimates, driven by a continued uptick in sales of its key drugs, including Keytruda and Gardasil. Not only do we expect Merck to post upbeat Q1 results, but we also find its stock to have more room for growth from its current levels, as we discuss below. Our interactive dashboard analysis on Merck’s Earnings Preview has additional details.
(1) Revenues expected to be in line with the consensus estimates
- Trefis estimates Merck’s Q1 2022 revenues to be $14.7 billion, aligning with the consensus estimate.
- The company’s overall revenue growth is likely to be bolstered by market share gains for Keytruda and Gardasil.
- Merck’s top-selling drug – Keytruda – saw its sales rise 15% to $4.6 billion in Q4, while Gardasil sales were up a significant 53% to $1.5 billion.
- The company’s animal health business has also been doing well with 8% y-o-y gains in Q4, and the growth trend 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 top line and its comparison to peers.
(2) EPS likely to be comfortably above the consensus estimates
- Merck’s Q1 2022 adjusted earnings per share (EPS) is expected to be $1.90 per Trefis analysis, comfortably above the consensus estimate of $1.83.
- Merck’s adjusted net income of $4.6 billion in Q4 2021 reflected a significant 84% rise from its $2.5 billion figure in the prior-year quarter, led by higher revenues and expansion of operating margins.
- However, inflationary headwinds and supply chain constraints threaten margin expansion in the near term.
- Our dashboard on Merck’s Operating Income has more details.
- For the full year 2022, we expect the adjusted EPS to be higher at $7.50, compared to $6.02 in 2021.
(3) MRK stock has more room for growth
- We estimate Merck’s Valuation to be $96 per share, which is 13% above the current market price of $85.
- This represents a forward P/EBITDA of 14.9x based on Merck’s EBITDA estimate.
- 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 higher levels for MRK stock.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Honeywell vs. Merck.
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