Merck & Co. Inc. MRK is scheduled to report its first-quarter 2015 earnings results on Apr 28, before the opening bell. The company has recorded positive earnings surprises all through 2014 with an average beat of 5.24%. Let’s see how things are shaping up for this announcement.
Will Generics & Currency Outweigh Cost Control Measures?
Merck is facing generic competition for quite a few drugs in its portfolio including Singulair, and Temodar among others. In addition to being impacted by the genericization of these products, Januvia, a key contributor to the top line, recorded a 1.8% decline in sales in 2014. Although Merck is working on reviving sales, the rebate and pricing pressure being faced by Januvia due to the entry of new products in the diabetes market is concerning. Isentress is also facing competitive pressure.
Remicade, which started facing biosimilar competition in small EU markets, lost patent protection in major EU markets in Feb 2015. Biosimilar competition will intensify and lead to pricing pressure. Meanwhile, unfavorable currency movement will impact 2015 revenues by about $2.6 billion and earnings by 27 cents.
The company is looking towards cost-cutting measures and share buybacks to drive the bottom line. Merck is on track to generate annual net cost savings of $2.5 billion by the end of 2015.
Meanwhile, Merck is focusing on its core areas of expertise. The company has made several acquisitions (including Idenix Pharmaceuticals and Cubist Pharmaceuticals) to boost its portfolio and pipeline. The company is also streamlining its operations and sold its Consumer Care business to Bayer BAYRY last year.
In the first quarter, we expect investor focus to remain on the ramp up of Keytruda – the first approved anti-PD-1 therapy in the U.S. Pipeline updates will also remain an area of focus including the company’s plans for its experimental hepatitis C virus (HCV) treatments.
Earnings Whispers?
Our proven model does not conclusively show that Merck is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately, this is not the case here, as elaborated below.
Zacks ESP: Earnings ESP for Merck is -1.33%. That is because the Most Accurate estimate is 74 cents while the Zacks Consensus Estimate is higher at 75 cents.
Zacks Rank: Merck’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks That Warrant a Look
Here are some health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.
Bristol-Myers Squibb BMY has an Earnings ESP of +2.00% and carries a Zacks Rank #3.
The ESP for Actavis ACT is +1.04% and it carries a Zacks Rank #2 (Buy). The company is scheduled to release results on May 11.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment