Will Merck Stock Rise After Its Q3 Results?

Merck (NYSE: MRK) is scheduled to report its Q3 2022 results on Thursday, October 27. We expect the company to post mixed results, with revenue falling short and earnings slightly above the consensus estimate. Although the company should benefit from continued market share gains for Keytruda and Gardasil, among other products, forex headwinds may weigh on its overall performance. We expect MRK stock to trade sideways post-Q3 and find it fairly valued at its current levels, as discussed below. Our interactive dashboard analysis on Merck’s Earnings Preview has additional details.

(1) Revenues expected to be below the consensus estimates

• Trefis estimates Merck’s Q3 2022 revenues to be $13.9 billion, reflecting mid-single-digit y-o-y growth but below the $14.1 billion consensus estimate.
• Market share gains will likely drive revenue growth for Keytruda and Gardasil.
• Looking at Q2 2022, Merck reported revenue of $14.6 billion, reflecting a significant 28% y-o-y growth, partly due to a $1.2 billion sales contribution from its Covid-19 treatment – Lagevrio.
• Merck’s top-selling drug – Keytruda – saw its sales rise 26% to $5.3 billion in Q2, while Gardasil sales were up a significant 36% to $1.7 billion.
• Our dashboard on Merck Revenues offers more details on the company’s segments.

(2) EPS expected to be slightly above the consensus estimates

• Merck’s Q3 2022 adjusted earnings per share (EPS) is expected to be $1.75 per Trefis analysis, slightly above the consensus estimate of $1.72.
• Merck’s adjusted net income of $4.7 billion in Q2 2022 reflected a large 3x rise from its $1.6 billion figure in the prior-year quarter, led by higher revenues and lower operating expenses.
• Operating expenses decreased 19% to $5.2 billion, primarily due to a favorable comparison to the prior year’s quarter, which included a $1.7 billion charge related to the Pandion Therapeutics acquisition.
• For the full year 2022, we expect the adjusted EPS to be higher at $7.38, compared to $6.02 in 2021.

(3) MRK stock is fairly valued

• We estimate Merck’s Valuation to be $102 per share, which is only 7% above the current market price of $96.
• This represents a forward P/E multiple of 13x based on our EPS forecast of $7.38 in 2022 and aligns with the last three-year average of 13x, implying that MRK stock is fully valued.
• However, if the company reports upbeat results, along with guidance better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for MRK stock.