Can Merck (MRK) Keep the Earnings Beat Streak Alive in Q3?
We expect Merck & Co., Inc. MRK to beat estimates when it reports third-quarter 2019 results on Oct 29 before market open. In the last reported quarter, the company delivered a positive earnings surprise of 12.07%.
Merck’s performance has been pretty impressive, with the company exceeding earnings expectations in all the trailing four quarters. The average four-quarter positive earnings surprise was 7.96%.
Merck & Co., Inc. Price and EPS Surprise
Merck’s shares have risen 8.4% in the year so far against 0.3% decrease for the industry.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Merck’s new products like cancer drug Keytruda, Gardasil vaccine and Bridion injection are likely to have driven the top line in the to-be-reported quarter driven by strong demand trends. Alliance revenues from Lynparza and Lenvima may have contributed to higher oncology sales. Please note that Merck markets Lynparza in partnership with AstraZeneca AZN.
However, the top line is expected to reflect the impact of loss of exclusivity (“LOE”) for some products, biosimilar competition for Remicade in Merck’s marketing territories and competitive pressure for the diabetes franchise (Januvia/Janumet) and currency headwinds.
Keytruda sales once again must have been driven by the launch of new indications globally. Keytruda sales are gaining from strong momentum in first-line lung cancer indication and recent launch in newer indications – renal cell carcinoma and adjuvant melanoma.
This year so far, Keytruda has gained several label expansion approvals. It includes FDA approval as an adjuvant therapy for high-risk stage III melanoma, first-line advanced renal cell carcinoma (RDCC), first-line recurrent or metastatic head and neck squamous cell cancer (HNSCC), previously treated advanced small-cell lung cancer (SCLC) and advanced esophageal cancer. Keytruda was also approved for five new cancer line extensions in Japan and Keytruda + Inlyta combo was approved in EU for first-line advanced RCC. All these label expansion approvals should drive sales of Keytruda higher in the future quarters of 2019.
Strong demand in most markets is driving sales of Bridion (sugammadex) Injection – a trend that most likely continued in the third quarter. Meanwhile, ongoing commercial launch in China and higher demand in Europe might have driven sales of Gardasil/Gardasil 9 vaccine. Importantly, sales of the vaccine improved in the United States in the second quarter due to favorable public sector buying patterns and greater demand in adolescent cohorts. It remains to be seen if the improved U.S. sales trends of Gardasil continued in the third quarter.
Animal health franchise sales recovered in the second quarter from softer growth in the first quarter. We expect the improving trend to have continued in the third quarter.
Meanwhile, adjusted gross margin is expected to have been roughly flat year over year as an improved product mix is likely to have been offset by headwinds like lower prices, royalty payments, currency fluctuations and continued amortization of collaboration milestones.
Our proven model predicts an earnings beat for Merck in the soon-to-be-reported quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise.
Earnings ESP: Merck’s Earnings ESP is +0.16%. The Zacks Consensus Estimate stands at $1.25 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Merck has a Zacks Rank #3.
Other Stocks to Consider
Here are some other large drug/biotech stocks that have the right combination of elements to beat on earnings this time around:
GlaxoSmithKline plc GSK has an Earnings ESP of +3.03% and a Zacks Rank #2. The company is scheduled to release results on Oct 30. You can see the complete list of today’s Zacks #1 Rank stocks here.
Amgen, Inc. AMGN has an Earnings ESP of +0.50% and a Zacks Rank #3. The company is scheduled to release results on Oct 29.
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