Is A Fall Imminent For Merck Stock After A 12% Rise In A Month?

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Merck

Merck stock (NYSE: MRK) is up 12% in a month, outperforming the broader S&P500 index, up 5%. The rise in MRK stock can be attributed to the upbeat Q3 earnings it reported in late October. Its top and bottom line were well above our estimates, driven by market share gains for some of its drugs.

Merck’s revenue of $15.0 billion reflected a 14% y-o-y rise and was well above our $13.9 billion estimate. Sales were up 20% for its top-selling drug – Keytruda. Gardasil vaccine sales were also up 15%. The company’s Covid-19 antiviral pill – Lagevrio – garnered just $436 million during the quarter, compared to the $3.2 billion it garnered in Q1 and $1.2 billion in Q2. Merck’s earnings of $1.85 on a per share and adjusted basis reflect a 4% growth compared to $1.78 in the prior-year quarter, as higher sales were partly offset by higher operating expenses, primarily R&D, which was up 46% y-o-y. Earnings were also comfortably above our forecast of $1.75 and the consensus estimate of $1.72.

Given a solid Q3, Merck raised its outlook, and it now expects full-year 2022 revenue to be in the range of $58.5 billion to $59.0 billion and earnings to be in the range of $7.32 to $7.37 per share, compared to its prior forecast of $7.25 to $7.35 per share. We estimate Merck’s Valuation to be around $114 per share, which is about 12% above the current market price of $102. This represents a 15x P/E multiple based on its expected EPS of $7.40 in 2022, compared to the last three-year average of 13x. We have assigned a slightly higher multiple for Merck than its historical average due to robust earnings growth expected in the coming years, driven by continued market share gains for Keytruda.

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But What About The Near Term?

Now that MRK stock has seen a 12% rise in a month, will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a meager chance of an increase in MRK stock over the next month. MRK stock has seen a move of 12% or more in a month 21 times in the last ten years. Just three of those resulted in MRK stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 3 out of 21, or a 14% chance of a rise in MRK stock over the coming month. See our analysis on Merck Stock Chance of Rise for more details.

Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using the last ten years’ data

  • After moving 2.2% or more over five days, the stock rose on 51% of the occasions in the next five days.
  • After moving 3.2% or more over ten days, the stock rose in the next ten days on 52% of the occasions
  • After moving 11.6% or more over a twenty-one-day period, the stock rose on 14% of the occasions in the next twenty-one days.

This pattern suggests a higher chance of a rise in MRK stock over the next five and ten days but a meager chance of an increase in the next twenty-one days.

Merck (MRK) Stock Return (Recent) Comparison With Peers And S&P500

  • Five-Day Return: BMY highest at 3.0%; PFE lowest at -0.7%
  • Ten-Day Return: BMY highest at 7.2%; JNJ lowest at 0.1%
  • Twenty-One Days Return: BMY highest at 14.5%; JNJ lowest at 6.0%

While MRK stock looks like it can see lower levels over the next month, 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 and recent market volatility have 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 33% 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 Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MRK Return 0% 33% 73%
 S&P 500 Return -3% -21% 67%
 Trefis Multi-Strategy Portfolio -5% -26% 192%

[1] Month-to-date and year-to-date as of 11/10/2022
[2] Cumulative total returns since the end of 2016

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