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Will Merck (MRK) Keep the Earnings Streak Alive in Q4?

Merck & Co. Inc.MRK is scheduled to report its fourth-quarter 2015 earnings results on Feb 3, before the opening bell. Merck's performance has been pretty impressive with the company beating earnings expectations consistently. The average earnings beat over the last four quarters is 7.17%.

Last quarter, Merck had posted a positive earnings surprise of 5.49%. Let's see how things are shaping up for the company this quarter.

Keytruda Should Continue to Perform Well

At the time of reporting third quarter results, Merck had provided 2015 earnings guidance of $3.55 - $3.60 per share and revenues of $39.2 billion - $39.8 billion. Keytruda (cancer) should continue performing well. The performance of new products like Belsomra (insomnia) and Zerbaxa (anti-bacterial) will also be in focus.

On the third quarter call, Merck had reported that demand for Belsomra is increasing steadily with growing brand awareness. The company is investing in a DTC campaign to increase consumer awareness.

Merck is also working on driving Zostavax (vaccine) sales. On the third quarter call, Merck said that it expects the new DTC campaign for Zostavax in the U.S. to drive growth. The new campaign will focus on increasing brand awareness and patient activation.

However, currency, which negatively impacted third quarter revenues, will continue to impact results. In addition to the impact of currency movement, 2015 revenues will also be impacted by about $1 billion due to net lost sales from acquisitions and divestitures.

Meanwhile, Remicade will continue to feel the pressure of biosimilar competition in Europe with sales expected to decline at a rapid pace in the fourth quarter and through 2016. Slowing growth of the integrase class and continued competitor dynamics in the U.S. and Europe will affect Isentress sales. Januvia sales, which were boosted in the third quarter due to the timing of customer purchases, will be affected by inventory de-stocking in the fourth quarter.

Merck's cost-cutting efforts and other strategic initiatives should drive the bottom line. Investor focus will also remain on the company's recently approved hepatitis C virus (HCV) treatment, Zepatier.

Earnings Whispers?

Our proven model shows that Merck is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP : Earnings Surprise Prediction or Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.10%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold) : Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of Merck's Zacks Rank #3 and +1.10% ESP makes us very confident in looking for a positive earnings beat on Feb 3.

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Bayer AG BAYRY has an Earnings ESP of +4.62% and carries a Zacks Rank #3. It is scheduled to report fourth-quarter results on Feb 25.

The Earnings ESP for Sanofi SNY is +1.45% and it carries a Zacks Rank #3. The company is scheduled to release third-quarter results on Feb 9.

Shire plc SHPG has an Earnings ESP of +2.11% and carries a Zacks Rank #3. It is scheduled to report fourth-quarter results on Feb 11.

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SANOFI-AVENTIS (SNY): Free Stock Analysis Report

MERCK & CO INC (MRK): Free Stock Analysis Report

BAYER A G -ADR (BAYRY): Free Stock Analysis Report

SHIRE PLC-ADR (SHPG): Free Stock Analysis Report

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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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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