Merck Slips 8% in a Month: Should You Buy, Hold or Sell the Stock?

Core Viewpoint - Merck's stock has declined 7.8% following the announcement of its fourth-quarter 2024 results and disappointing guidance for 2025, despite beating earnings and sales estimates [1][2]. Financial Performance - In Q4 2024, Merck's sales of the Gardasil vaccine declined by 17% due to weak demand in China, and sales of the new drug Winrevair also missed estimates [2]. - Merck's 2025 revenue guidance is projected between $64.1 billion and $65.6 billion, reflecting a year-over-year growth of 2% to 4%, which fell short of investor expectations [15][17]. - The earnings per share guidance for 2025 is set between $8.88 and $9.03, also below expectations [17]. Product Portfolio and Strengths - Keytruda, a PD-L1 inhibitor, is Merck's most significant product, accounting for approximately 50% of pharmaceutical sales and driving steady revenue growth [3][4]. - Merck is pursuing innovative strategies to enhance Keytruda's long-term growth, including combinations with other immuno-oncology drugs and a personalized mRNA therapeutic cancer vaccine in collaboration with Moderna [5][6]. Pipeline and Strategic Moves - Merck's pipeline has nearly tripled in the past three years, with several new vaccines and drugs expected to launch in the next five years, including the 21-valent pneumococcal conjugate vaccine, Capvaxive, and Winrevair [8][9]. - The company has made strategic acquisitions, including Eyebiotech Limited and Harpoon Therapeutics, to bolster its pipeline [7]. Challenges and Risks - Concerns are rising regarding Merck's reliance on Keytruda, especially with its patent expiration in 2028, and the need for diversification in its product lineup [10][11]. - Competitive pressure is increasing, particularly from Summit Therapeutics' ivonescimab, which has shown potential to outperform Keytruda in clinical studies [12]. - Sales of Gardasil have also been affected by economic conditions in China, leading to a temporary halt in shipments to manage inventory levels [13][14]. Market Performance - Merck's stock has underperformed, losing 28.7% over the past year compared to a 0.1% increase in the industry [18][19]. - The stock is currently trading below its 50-day and 200-day moving averages, indicating weak market sentiment [18]. Valuation - Merck's shares trade at a forward price/earnings ratio of 9.89, which is lower than the industry average of 17.48 and its five-year mean of 13.22, suggesting potential attractiveness from a valuation perspective [20].