Merck Reports Disappointing 1Q Results; Street Maintains A Strong Buy

Merck (MRK) reported disappointing first quarter results on Thursday with sales of $12.1 billion falling 1%, excluding the impact of currency fluctuations. Analysts were expecting sales of $12.6 billion.

The company’s non-GAAP adjusted EPS fell 7% year-on-year to $1.40 per share, falling short of consensus estimates of $1.61 per share.

Merck’s Chairman and CEO, Kenneth C. Frazier said, “While our results this quarter were impacted by the pandemic, the underlying demand for our innovative products remains strong and we remain confident in our future growth prospects. We are also taking the right steps to evolve Merck’s operating model to continue to create value for patients, shareholders and society.”

First quarter sales reflected strong performances for oncology treatments, KEYTRUDA, Lynparza and BRIDION, which saw sales growth excluding exchange rate fluctuations of 16%, 51%, and 11%, respectively, while the company’s Animal Health business segment saw sales rise 15% year-on-year to $1.4 billion.

The company provided financial guidance for FY21 based on the assumption that the Organon business will be part of MRK for the whole year, but the company anticipates that the spinoff of Organon will be completed on June 2 this year. Merck stated that if the spinoff occurs on that date, the company will update its guidance.

Merck is expecting sales to grow year-on-year at a rate of 8% to 12% and range between $51.8 billion and $53.8 billion in FY21. This forecast is based on exchange rates as at mid-April. Merck anticipates non-GAAP EPS of between $6.48 and $6.68, including a favorable impact of currency fluctuations of less than 3%. (See Merck stock analysis on TipRanks)

Following the results, Mizuho Securities analyst Mara Goldstein reiterated a Buy and a price target of $100 on the stock. This implies approximately 36% upside potential from current price levels.

Goldstein said in a note to investors, “We see the strength of KEYTRUDA as a key asset, as well as growth in BRIDION suggesting moderating COVID-19 impacts. Revenue guidance of $51.8-$53.8 bln was maintained as was CY21 non-GAAP EPS ($6.48 – $6.68) guidance.”

“The Organon/OGN spin-out is expected to complete on June 2, at which time we anticipate guidance to reflect the standalone MRK. We like the strength of KEYTRUDA and the opportunity to realize margin expansion,” Goldstein added.

Overall, consensus among analysts is that MRK is a Strong Buy based on 3 Buys and 1 Hold. The average analyst price target of $93 implies upside potential of about 26.2% from current levels.

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