24Q3 sales rose 4.3% to $16.7 billion. Excluding currency, sales rose 7%. Once again, a double-digit gain in KEYTRUDA sales more than offset declining sales in the rest of the portfolio. GAAP diluted EPS was $1.24, below 23Q3’s $1.87 and my estimate of $1.43. Non-GAAP diluted EPS was $1.57 vs. last year’s $2.13 and my $1.68 estimate. All of the shortfall against my estimate (and more) was due to a $750 million ($0.28 per share) charge taken for the acquisition of MK-1045, an investigational bispecific antibody for the treatment of B-cell associated cancers, partially offset by $170 million ($0.05 per share) of collaboration income from Daiichi Sankyo. That MK-1045 acquisition was announced on October 1; so it was not included in Merck’s guidance or my projections.
Management narrowed its 2024 revenue guidance to $63.6-$64.1 billion, from $63.4-$64.4 billion. It also lowered its non-GAAP EPS guidance range from $7.94-$8.04 to $7.72-$7.77 as a result of the MK-1045 acquisition charge and Daichi Sankyo collaboration payment. Otherwise, Merck’s guidance is unchanged.
Based upon 24Q3 results and the updated guidance, I now project 2024 GAAP revenues of $64.1 billion, GAAP EPS of $7.00 and non-GAAP EPS of $7.77, all within management’s guidance metrics. For 2025, my projections anticipate revenues of $67.1 billion, up 4.6%, GAAP EPS of $8.36 (down from $8.40, previously) and non-GAAP EPS of $9.15 (down from $9.26). The slight decline in projected 2025 EPS is due to tweaks of my financial model, with the biggest difference coming from lower projected other (income) expense, net.
Since my previous report, Merck’s stock has declined 9%, worse than the 3.7% drop in the NYSE ARCA Pharmaceutical Index and the 13% gain in the S&P 500. Investors are worried about the continuing stalled sales of Gardasil in China and the company’s increasing dependence on KEYTRUDA and GARDASIL, which together accounted for 58.4% of 24Q3 revenues. Through acquisitions and internal development, Merck now has more than 20 assets in Phase 3 clinical trials, which should spawn a record number of product launches over the next five years, many of which may have blockbuster potential; but overall sales growth may slow over the next year or two until the new launches gain critical mass.
Based upon the recent drop in the stock price, I am lowering my price target from $130 to $122. The revised price target equates to a forward multiple of 14.6 times projected GAAP EPS of $8.36. At the current price of $101.17, the total return potential for Merck’s stock is nearly 24%, including its 3.0% dividend yield. Accordingly, I am maintaining my performance rating of “1” (Buy).
Merck’s stock remains in a downtrend from its June 25 peak of $134.63. In hindsight, my August upgrade was early, coming immediately after a sharp drop in the stock without clear evidence that a bottom was at hand. After the most recent decline which began in mid-September, the stock is now oversold, with an RSI below 30, and has shown early signs of stabilizing over the past few trading sessions; but it is still too early to declare confidently that it has bottomed.
This is a summary of my recent update report on Merck & Co., Inc. (MRK). To obtain a copy of the report, please reach out to me using the contact information provided below.
November 18, 2024 (Report published on November 7, 2024.)
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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