Merck & Co. Inc.
) is scheduled to report its second quarter 2013 results on Jul
30, 2013 before the opening bell.
We remind investors that Merck has delivered positive earnings
surprises in the last four quarters with an average beat of
4.39%. Last quarter, the company posted an 8.97% positive
surprise. Let's see how things are shaping up prior to the
Factors at Play
Although Merck's first quarter earnings beat expectations, the
overall results were disappointing. Merck reduced its outlook for
2013 due to higher-than-expected pressure on sales, higher
R&D spend, revised tax rates and unfavorable movements in
foreign exchange rates.
With Singulair losing exclusivity in the U.S. as well as the
EU, we expect Singulair sales to plummet further in the second
In addition, the performance of diabetes drug, Januvia, in the
U.S. is expected to be weak even though international sales are
expected to pick up in 2013. We note that Merck entered into a
strategic deal with
) for the development and commercialization of the latter's
diabetes candidate ertugliflozin. As per the agreement, the
companies are also looking to evaluate fixed dose combinations of
ertugliflozin with metformin and Januvia.
Other headwinds remain in the form of unfavorable currency
movement and pipeline setbacks.
In May 2013, Merck said that it will not pursue regulatory
filings for its Parkinson's disease candidate, preladenant after
unsuccessful phase III trials. Meanwhile, Merck received a
complete response letter (CRL) from the U.S. Food and Drug
Administration (FDA) for its insomnia candidate, suvorexant.
Earlier in the month, the FDA cancelled an advisory panel
meeting for pipeline candidate sugammadex (neuromuscular reversal
agent) leading to a delay in approval.
These challenges should be partially mitigated by the
company's cost-cutting initiatives and share buybacks.
Our proven model does not conclusively show that Merck will
beat earnings this quarter as a stock needs to have both a
positive Earnings ESP (Read:
Zacks Earnings ESP
) and a Zacks Rank #1, #2 or #3 to be able to beat Zacks
That is not the case here as you will see below.
The ESP, which represents the difference between the Most
Accurate estimate and the Zacks Consensus Estimate, is 0.00% as
the Most Accurate Estimate and the Zacks Consensus Estimate
currently stand at 82 cents.
Zacks Rank #3 (Hold):
Merck's Zacks Rank #3 when combined with a 0.00% ESP makes
surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5
(Sell-rated stocks) going into the earnings announcement,
especially when the company is seeing negative estimate revisions
Other Stocks to Consider
Here are some other companies you may want to consider as our
model shows that they have the right combination of elements to
post an earnings beat this quarter:
) has Earnings ESP of 1.75% and holds a Zacks Rank #2
Impax Laboratories Inc.
) has Earnings ESP of 66.67% and holds a Zacks Rank #3.
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