24Q2 sales increased 7.2% to $16.1 billion. Excluding currency, sales rose 11%. The sales gain came almost entirely from an increase of $1.0 billion in Keytruda. However, a few recently launched medicines posted solid sales, including Wellireg, Winrevair and Reblozyl
GAAP diluted EPS was $2.14 per share vs. last year’s loss of $2.35. My estimate was $1.93. Non-GAAP diluted EPS was $2.28 vs. last year’s loss of $2.05. My estimate was $2.14. (Last year’s loss came from a $10.2 billion IPRD write-off associated with the acquisition of Prometheus.) GAAP gross margin rose by 360 bp to 77.8% due to royalty payment expirations for Keytruda and Gardasil. The SG&A expense ratio fell 100 bp to 17.0%. R&D costs fell by $9.8 billion to $3.5 billion with the non-repeat of the Prometheus charge.
Management raised and narrowed its 2024 guidance. It now anticipates revenues of $63.4 billion to $64.4 billion, up $300 million at the low end of the range and $200 million at the midpoint. However, it lowered its non-GAAP EPS guidance by a little more than I expected from $8.53-$8.65 to $7.94-$8.04, due to the anticipated $1.3 billion write-off of the Eye-Bio acquisition, which should close in 24Q3, and other factors.
Based upon 24Q2 results and the updated guidance, I now project 2024 GAAP revenues of $64.1 billion, GAAP EPS of $7.16 and non-GAAP EPS of $8.01. For 2025, my projections anticipate revenues of $67.1 billion, up from $64.8 billion, GAAP EPS of $8.40 (from $8.09) and non-GAAP EPS of $9.26 (from $9.00). The increases are due to stronger expected growth for Keytruda, Wellireg, Winrevair and Reblozyl.
Merck’s stock plunged 10% on the day of reported earnings mostly because of lower expected sales for Gardasil in China. The reduced expectations spring from an unexplained step down in shipments from Merck’s distributor, Zhifei, to points of vaccination, leaving Zhifei with higher inventories. Merck is still trying to understand why this happened and does not know at this time when it will be resolved. With the recent sell-off in the broader market, Merck’s stock has continued to trend lower.
Based upon the recent drop in the stock and my revised 2025 forecast, I am lowering my price target to $130, which equates to a forward multiple of 15.5 times projected GAAP EPS of $8.40. At the current price, the total return potential for Merck’s stock is nearly 20%, including its 2.8% dividend yield. Accordingly, I am raising my performance rating from “3” (Neutral) to “1” (Buy).
This is a summary of my recent report on Merck & Co., Inc. (MRK). To obtain a copy of the full report, please reach out to me using the contact information provided below.
August 7, 2024. (Report published on August 7, 2024.)
Stephen P. Percoco
Lark Research
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