Earnings Beat In The Cards For Merck Stock?

Merck (NYSE: MRK) will report its Q1 2023 results on Thursday, April 27. We expect MRK stock to trade higher, with its revenue and earnings expected to be above the street estimates. Although the company should benefit from continued market share gains for Keytruda and Gardasil, among other products, forex headwinds and generic competition for some of its drugs, including Januvia/Janumet, may weigh on its overall performance. MRK stock is up 4% this year, underperforming the broader indices, with the S&P500 index rising 8%. After its recent rise, we find MRK stock is fully valued, as discussed 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 Q1 2023 revenues to be $13.9 billion, reflecting a 13% y-o-y decline and slightly above the $13.8 billion consensus estimate.
• Market share gains will likely continue to drive revenue growth for Keytruda and Gardasil. However, prior-year quarter sales included a $3.2 billion contribution from its Covid-19 antiviral drug Lagevrio, which will likely garner less than $1 billion in Q1 2023, impacting the overall sales growth for Merck.
• Looking at Q4 2022, Merck reported revenue of $13.8 billion, reflecting a 2% y-o-y growth, driven by a 19% rise in Keytruda sales to $5.5 billion, while Gardasil sales were down 4% to $1.5 billion.
• Merck’s diabetes drugs – Januvia/Janumet – now face generic competition in Europe and the Asia Pacific, likely resulting in a deep cut in sales in Q1. These drugs saw a significant 34% y-o-y fall in sales in Q4 2022.
• Our dashboard on Merck Revenues offers details on the company’s segments.

(2) EPS expected to be above the consensus estimates

• Merck’s Q1 2023 adjusted earnings per share (EPS) is expected to be $1.36 per Trefis analysis, higher than the consensus estimate of $1.32. This compares with the $2.14 figure the company reported in the prior-year quarter.
• Merck’s adjusted net income of $4.1 billion in Q4 2022 reflected a 10% fall from its $4.6 billion figure in the prior-year quarter due to higher R&D expenses.
• For the full year 2023, we expect the adjusted EPS to be lower at $6.95, compared to $7.48 in 2022.

(3) MRK stock is fully valued

• We estimate Merck’s Valuation to be $116 per share, aligning with its current market price.
• At its current levels, MRK is trading a forward P/E multiple of 17x based on our EPS forecast of $6.95 in 2023, slightly higher than the last three-year average of 14x, implying that MRK stock is fully priced.
• However, if the company reports upbeat results, along with the 2023 guidance better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for MRK stock.