Upcoming Launches Of WINREVAIR And CAPVAXIVE Will Drive Future Success In Oncology And Cardiometabolic Sectors

Key Takeaways

• Strong pipeline and new product launches, including WINREVAIR and KEYTRUDA, are projected to drive significant revenue growth.
  
• Short-term setback from paused GARDASIL shipments in China, but global growth outlook remains positive.
  
• Regulatory challenges and competitive pressures, including channel inventory issues and exclusivity loss, could negatively impact Merck's revenue and long-term earnings stability.

Catalysts

Operates as a healthcare company worldwide.

• Merck is progressing its pipeline and launching new products with significant commercial potential, bolstering long-term revenue growth, such as WINREVAIR's therapeutic potential and strong sales performance in the cardiovascular space.
  
• The company's focus on advancing key clinical programs and acquiring promising investigational assets through business development, including in oncology and cardiometabolic, is anticipated to enhance revenue and earnings over time.
  
• Merck's oncology portfolio, led by growth in KEYTRUDA sales and upcoming launches, is expected to support strong company growth, positively impacting revenue.
  
• Potential new product launches and pipeline assets, including the CAPVAXIVE vaccine and WINREVAIR for pulmonary arterial hypertension, are projected to drive significant future revenue growth.
  
• The decision to pause GARDASIL shipments to China to address elevated inventory levels is seen as a short-term setback, with a strong growth outlook outside of China expected to sustain overall company revenue.

Merck Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Merck's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.7% today to 35.3% in 3 years time.
• Analysts expect earnings to reach $25.9 billion (and earnings per share of $10.3) by about March 2028, up from $17.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $28.6 billion in earnings, and the most bearish expecting $20.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, down from 14.0x today. This future PE is lower than the current PE for the GB Pharmaceuticals industry at 16.5x.
• Analysts expect the number of shares outstanding to decline by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Merck Future Earnings Per Share Growth

Risks

• The market dynamics for GARDASIL in China have become challenging, leading Merck to temporarily pause shipments due to elevated channel inventory levels, impacting revenue and growth projections.
  
• There is increased pressure on discretionary consumer spending globally, affecting the demand for vaccines including GARDASIL, which could weigh on future revenues and margins.
  
• The anticipated loss of exclusivity (LOE) for KEYTRUDA poses challenges despite Merck's confidence in navigating this period, potentially impacting long-term earnings stability.
  
• Regulatory uncertainties and competitive pressures, such as Medicare Part D redesign impacting WINREVAIR and other oncology products, could negatively affect revenue and net margins.
  
• Potential hurdles in vaccination policy or guidelines, such as dosing schedule reviews by CDC and FDA, may pose risks to GARDASIL's market performance, affecting overall revenues.

Valuation

• The analysts have a consensus price target of $112.285 for Merck based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $146.0, and the most bearish reporting a price target of just $95.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $73.3 billion, earnings will come to $25.9 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $94.65, the analyst price target of $112.29 is 15.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.