Merck is set to report its Q2 2024 results, with expectations of revenue reaching $15.9 billion and adjusted earnings of $2.20. Keytruda is anticipated to be the primary driver of growth for the company, with sales estimated to exceed $7 billion, reflecting mid-teens year-over-year growth. Sales for Merck’s HPV vaccine, Gardasil, are also expected to rise in the mid-teens. While the company may have a positive Q2, analysts believe that there is limited room for stock growth. Merck’s stock performance has been somewhat inconsistent in recent years, underperforming the S&P 500 in 2021 and 2023.
Despite the challenges faced by individual stocks in beating the S&P 500, the Trefis High Quality Portfolio has consistently outperformed the benchmark index over the past few years. As the macroeconomic environment remains uncertain, with high oil prices and elevated interest rates, the question arises whether Merck will underperform the S&P in the next 12 months or experience a strong jump. From a valuation perspective, Merck seems to be appropriately priced, with an estimated valuation of $135 per share, close to the current market price of $127. The company is trading at 5x revenues compared to the 4.5x average over the last five years.
In the previous quarter, Merck saw a 9% year-over-year increase in revenue, driven by market share gains for Keytruda and sales growth for Gardasil. Adjusted gross margin also expanded, resulting in a 48% year-over-year increase in the bottom line. Keytruda and Gardasil remain the key growth drivers for the latest quarter, with Keytruda expanding into new indications and Gardasil experiencing strong demand in China. However, generic competition for Merck’s diabetes drugs may pose a challenge. The company’s management has indicated a likely expansion in the operating margin for 2024.
While Merck’s stock appears reasonably priced, it is essential to examine how the company’s peers are performing on key metrics. Comparisons to other companies across industries can provide valuable insights. Overall, analysts have mixed views on Merck’s performance in the upcoming quarter, with some concerns about the stock’s growth potential. Investors will be closely watching the company’s Q2 results to gain a better understanding of its revenue and earnings performance.
