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Merck & Co. (MRK) Q3 Earnings Assessment: Is the Pharma Stock a Buy or Sell?

In the wake of Merck & Co.'s (MRK) better-than-expected fiscal third-quarter showing and the enigmatic potential hinted at by its clinical successes, is this pharmaceutical powerhouse a hidden gem for investors? Let's find out...

Global healthcare giant Merck & Co., Inc. (MRK) recently reported its fiscal third-quarter results that exceeded expectations, driven by robust demand for its COVID-19 treatment. Sales of molnupiravir, the COVID-19 antiviral pill marketed as Lagevrio, surged by 47% to reach $640 million during the quarter, significantly surpassing Wall Street's estimates of $120 million.

In the previous quarter, MRK had anticipated that the bulk of Lagevrio's 2023 sales would be realized in the first half of the year, making the subsequent surge in demand. Consequently, MRK has revised its full-year sales projection for Lagevrio to an impressive $1.3 billion.

Moreover, Keytruda, the company's premier cancer immunotherapy, exceeded expectations with sales of $6.34 billion, surpassing the $6.22 billion analyst estimate. Additionally, MRK reported a non-GAAP EPS of $2.13, alongside a 7% year-over-year revenue growth to $15.96 billion, both exceeding projections.

Furthermore, the industry frontrunner has adjusted its full-year sales forecast to a range of $59.7 billion to $60.2 billion, showing a slight uptick from the previous guidance of $58.6 billion to $59.6 billion provided in August.

Shares of MRK have gained 1.9% intra-day and 7.3% over the past year to close the last trading session at $105.55.

Here are some of the factors that could influence MRK’s price performance in the near term:

Recent Developments

On October 22, MRK reported the results of the Phase 3 KEYNOTE-A39 trial, conducted in collaboration with Seagen and Astellas Pharma Inc. (ALPMY). The trial showcased the remarkable potential of KEYTRUDA in combination with Padcev, significantly reducing the risk of death by 53% and extending median overall survival by more than 15 months.

These findings advance oncology and position MRK as a leader in cutting-edge cancer therapies, contributing to its strategic growth and prominence in the pharmaceutical industry.

On October 19, MRK and Daiichi Sankyo Company, Limited (DSNKY), a pioneering global healthcare company, formalized a development and commercialization agreement for three DXd antibody-drug conjugate (ADC) candidates: patritumab deruxtecan (HER3-DXd), ifinatamab deruxtecan (I-DXd), and raludotatug deruxtecan (R-DXd).

Under the partnership, the companies will collaboratively advance and potentially market these ADC candidates worldwide, except for Japan, where DSNKY would retain exclusive rights.

By expanding its portfolio with potentially groundbreaking cancer therapies, MRK can position itself as a leader in the oncology field, contributing to the company's strategic growth and reinforcing its reputation for innovation and patient-centric care.

Impressive Historical Growth

Over the past five years, MRK’s revenue and EBITDA increased at a CAGR of 7.2% and 1.4%, respectively. Its net income and EPS grew at respective CAGRs of 18.3% and 20.4%. In addition, the company’s total assets rose at a CAGR of 4.2% during the same period.

Upbeat Analyst Estimates

The consensus revenue estimate of $62.67 billion for the fiscal year ending December 2024 reflects a 4.7% year-over-year improvement. Likewise, the consensus EPS estimate of $8.42 for the next year exhibits a 307.8% rise from the previous year. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

Dividend Growth

MRK increased its dividends for 12 consecutive years. It pays a $2.92 per share dividend annually, translating to a 2.77% yield on the current price level. Its dividend has grown at a 9.8% CAGR over the past three years, and its four-year average dividend yield is 2.96%.

Higher-Than-Industry Profitability

MRK’s trailing-12-month gross profit margin of 73.21% is 31.5% higher than the industry average of 55.67%. Also, the stock’s trailing-12-month EBITDA margin of 23.52% is 350.4% higher than the 5.22% industry average. Furthermore, its trailing-12-month levered FCF margin of 6.10% compares with the 0.45% industry average.

POWR Ratings Show Promise

MRK’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MRK has a B grade for Quality, justified by its high profitability. In addition, the stock has a B grade for Stability, consistent with its 24-month beta of 0.16.

UNH is ranked #12 in the 154-stock Medical - Pharmaceuticals industry. Click here to access MRK’s Growth, Value, and Momentum ratings.

Bottom Line

The pharma giant’s recent financial and clinical successes suggest its bright prospects. The company's ability to surpass expectations in both COVID-19 treatment and oncology has prompted upward revisions in sales projections, instilling greater investor confidence.

Moreover, MRK's dynamic collaboration with DSNKY to advance ADC candidates further enriches its oncology portfolio, solidifying its position as a pioneering leader and reaffirming its steadfast dedication to patient-centered healthcare. Coupled with robust profitability, steady dividend growth, and high stability, MRK could be a solid buy now.

How Does Merck & Co., Inc. (MRK) Stack Up Against Its Peers?

While MRK has an overall grade of B, equating to a Buy rating, you may also check out these A-rated stocks within the Medical - Pharmaceuticals industry: AbbVie Inc. (ABBV), AstraZeneca PLC (AZN) and Novartis AG (NVS). For exploring more A-rated Medical – Pharmaceuticals stocks, click here.

What To Do Next?

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MRK shares rose $0.89 (+0.84%) in premarket trading Friday. Year-to-date, MRK has declined -2.26%, versus a 9.64% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.


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