Merck Q1 Earnings Coming Up: Should You Buy the Stock Now?

Core Viewpoint - Merck is set to report its first-quarter 2024 earnings on April 24, with sales and earnings estimates at $15.48 billion and $2.16 per share respectively, while earnings estimates for 2025 have seen a slight decline from $9.01 to $8.96 per share over the past month [1][2]. Earnings Performance - Merck has consistently exceeded earnings expectations in the last four quarters, achieving an average earnings surprise of 4.68% [2][3]. - The most recent quarter showed an earnings surprise of 1.78% [2]. Sales Drivers - The anticipated top-line growth in Q1 is expected to be driven by the cancer drug Keytruda, supported by increased patient demand and additional indications [5]. - Keytruda's sales are projected at $7.55 billion according to the Zacks Consensus Estimate, while a higher estimate of $7.82 billion is provided [6]. Product Performance - U.S. sales of Keytruda in the previous quarter benefited from approximately $200 million in wholesale inventory buy-in, which is expected to reverse in Q1 2025 [7]. - Sales of the new drug Welireg are likely to have increased due to its uptake for advanced renal cell carcinoma [13]. - The HPV vaccine Gardasil is expected to see mixed results, with U.S. sales increasing due to higher pricing, while ex-U.S. sales may decline due to lower demand in China [10]. Competitive Landscape - Merck's reliance on Keytruda raises concerns about the company's ability to diversify its product lineup ahead of the drug's loss of exclusivity in 2028 [23]. - Competitive pressure for Keytruda may increase, particularly from Summit Therapeutics' candidate ivonescimab, which has shown promising results in trials [24]. Valuation and Market Performance - Merck's stock has declined 21.1% year-to-date, underperforming the industry and the S&P 500 [16]. - The company's shares trade at a forward price/earnings ratio of 8.44, which is lower than the industry average of 15.07 and its own 5-year mean of 13.10 [19]. Investment Outlook - Merck's portfolio includes several blockbuster drugs, with Keytruda being a significant revenue driver, alongside growth in animal health and vaccine products [22]. - Despite challenges such as declining sales for Gardasil in China and potential competition for Keytruda, the company is expected to maintain strong fundamentals in the long term [26][27].