Merck MRK will report its third-quarter earnings on Oct. 31, before market open. The Zacks Consensus Estimate for sales and earnings is pegged at $16.54 billion and $1.54 per share, respectively. Earnings estimates for Merck have declined from $8.01 to $7.80 per share over the past 30 days. For 2025, earnings estimates have declined from $9.70 to $9.64 per share over the same timeframe.
Image Source: Zacks Investment Research
Earnings Surprise History of Merck
The healthcare bellwether’s performance has been solid, with the company exceeding earnings expectations in each of the trailing four quarters. It delivered a four-quarter earnings surprise of 38.85%, on average. In the last reported quarter, the company delivered an earnings surprise of 5.56%, as seen in the chart below.
Image Source: Zacks Investment Research
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
What Does Our Model Say for MRK?
Merck has an Earnings ESP of -2.32% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per our proven model, companies with the combination of a positive Earnings ESP and a Zacks Rank #1, #2 (Buy) or #3 have a good chance of delivering an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping MRK’s Upcoming Results
Merck’s top-line growth in the third quarter is likely to have been driven by the cancer drug Keytruda, like in several previous quarters, which were aided by additional indications and patient demand.
In oncology drugs, Keytruda sales are likely to have been driven by rapid uptake across earlier-stage indications globally, particularly early-stage non-small cell lung cancer, for which approval was received in the United States in October 2023. Continued strong momentum in metastatic indications is also likely to have boosted sales growth. The Zacks Consensus Estimate for Keytruda’s sales is $7.38 billion, while our estimate is $7.3 billion.
Higher alliance revenues from Lynparza, driven by increased demand, may have boosted oncology sales. Please note that Merck markets Lynparza in partnership with AstraZeneca AZN.
Alliance revenues from Lenvima may have also boosted oncology sales.
Sales of Welireg are likely to have been driven by the launch of a new indication of previously treated advanced renal cell carcinoma for which FDA approval was received in December 2023.
With regard to the HPV vaccine, Gardasil, ex-U.S. sales are expected to have been hurt by less shipments in China than previously expected. In the United States, higher pricing as well as demand could have benefited sales.
The Zacks Consensus Estimate for Gardasil is $2.6 billion, while our estimate is $2.66 billion.
In the hospital specialty portfolio, generic competition in certain ex-U.S. markets, mainly Europe and the Asia Pacific region, is likely to have hurt sales of neuromuscular blockade medicine — Bridion injection. The Zacks Consensus Estimate for Bridion is $412 million, while our estimate is $408.5 million.
Lower demand and pricing in the United States and generic competition in certain international markets, mainly Europe and Asia Pacific, are likely to have hurt sales of the diabetes franchise (Januvia/Janumet).
Investors will be keen to know the sales numbers of new pulmonary arterial hypertension (PAH) drug, Winrevair (sotatercept), which was approved by the FDA in March. The drug recorded sales of $70 million in the second quarter. Sales are expected to be higher in the third quarter. Winrevair was approved in Europe in August, which is likely to have boosted sales.
The Zacks Consensus Estimate for Merck’s Pharmaceutical unit is $14.96 billion, while our estimate is $14.8 billion.
In the Animal Health franchise, sales of livestock products are likely to have increased, while sales of companion animal products might have declined. The Zacks Consensus Estimate for the Animal Health unit is $1.5 billion, while our estimate is $1.43 billion.
Adjusted earnings in the quarter are likely to have been hurt by charges related to the EyeBio acquisition, which closed in July.
Nonetheless, a single quarter’s results are not so important for long-term investors. Let us delve deeper to understand whether to buy, sell or hold Merck stock.
MRK’s Price Performance & Valuation
Merck’s stock has declined 2.9% year to date against an increase of 18.7% for the industry. The stock has also underperformed the sector and the S&P 500 Index, as seen in the chart below. The stock is also trading below its 200- and 50-day moving averages.
Merck Stock Underperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
From a valuation standpoint, Merck appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 11.36 forward earnings, lower than 18.76 for the industry as well as its 5-year mean of 13.56. Merck’s stock is also cheaper than other large drugmakers like AbbVie ABBV, AstraZeneca AZN, Novo Nordisk and Eli Lilly LLY.
MRK Stock Valuation
Image Source: Zacks Investment Research
Investment Thesis
Merck boasts more than six blockbuster drugs in its portfolio, with blockbuster PD-L1 inhibitor Keytruda being the key top-line driver. Merck’s Animal health and vaccine products are core growth drivers. It has a strong cancer pipeline, including Keytruda. Merck is investing in M&A activity to strengthen its pipeline. However, Merck is heavily reliant on Keytruda. Though Keytruda may be Merck’s biggest strength and a solid reason to own the stock, it can also be argued that the company is excessively dependent on the drug and should look for ways to diversify its product lineup. Keytruda is set to lose patent exclusivity in 2028. The company’s second-largest product, Gardasil, is also seeing grim sales in China.
Nonetheless, we believe the strong demand for Keytruda, higher sales of Gardasil in the United States and international markets other than China and a significant contribution from new products like Welireg and Vaxneuvance vaccine will keep driving top-line growth in the mid-to-long term.
Stay Invested in MRK Stock
No matter how the third-quarter results play out, we suggest that investors who own Merck’s stock stay invested, as the company has one of the world’s best-selling drugs in its portfolio, generating billions of dollars in revenues. Though Keytruda will lose patent exclusivity in 2028, its sales are expected to remain strong until then. Merck is pinning hopes on PAH drug Winrevair to boost its top line once Keytruda loses exclusivity.
Merck’s stock is reasonably valued and buying this fundamentally strong company at the current price can prove to be beneficial for long-term investors.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
