Merck Earnings Preview: Second Quarter 2009

Merck [[MRK]] is scheduled to report their second quarter 2009 results before the market opens on Tuesday, July 21. Based on our analysis, we at are expecting MRK to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $5.90 billion and EPS of $.78. This would represent a 2% decline in revenues from last year’s $6.05 billion in the same period. The current analyst consensus estimates calls for revenues of $5.84 billion and EPS of $.77. On April 21, the company reiterated its full year 2009 EPS guidance of $3.15 – $3.30.


Last quarter, Merck delivered a rare quarterly earnings miss as global sales fell 8%. Despite the difficult global economy in the first quarter, Merck declared that they remain on track to meet their full year earnings guidance which makes us more confident in Merck’s ability to beat consensus expectations this quarter. During the second quarter, economic conditions did improve if only marginally and we expect Merck’s earnings performance to reflect that improvement.


For the remainder of 2009, investors will likely be focused on Merck’s acquisition of Schering-Plough [[SGP]]. The $41 billion acquisition is expected to be completed in the fourth quarter of this year. We view this deal as a positive for Merck and expect it to be the catalyst the company needs to fuel growth in the coming years.


Share Performance

Since the beginning of the year, Merck’s shares are down over 11%. In 2008, MRK’s shares fell nearly 48% and underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 8x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. We view Merck’s low valuation levels and high 5.7% dividend yield as very attractive to investors.


Recommendation: Buy with a $35 price target.


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