Will Merck Stock Rise After Its Q3 Results?

MRK: Merck logo

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.
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(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.

While MRK stock looks fairly priced, it is helpful to see how Merck’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Xylem vs. Merck.

Despite inflation rising and the Fed raising interest rates, Merck stock has risen 25% this year. But can it drop from here? See how low Merck stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Oct 2022
MTD [1]
YTD [1]
Total [2]
 MRK Return 11% 25% 63%
 S&P 500 Return 5% -21% 68%
 Trefis Multi-Strategy Portfolio 1% -25% 196%

[1] Month-to-date and year-to-date as of 10/23/2022
[2] Cumulative total returns since the end of 2016

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