Advancing New Therapies And Expanding Global Markets Pave The Way For Long-Term Growth And Innovation

Key Takeaways

• Expanding product pipeline and R&D investments aim to boost revenue, long-term growth, and market share in key therapeutic areas.
  
• Ongoing demand for KEYTRUDA and strategic vaccine expansion anticipate robust revenue growth and improved market presence globally.
  
• Merck faces revenue growth challenges from declining vaccine sales, expiring agreements, increased competition, local rivals, and external pricing and currency pressures.

Catalysts

Operates as a healthcare company worldwide.

• Launching new products and advancing a diverse pipeline across multiple therapeutic areas could significantly boost future revenue streams, especially with many candidates having blockbuster potential.
  
• Increasing focus and investment in R&D and strategic business developments aimed at expanding Merck's portfolio suggests potential for improved earnings and long-term growth.
  
• The continued global demand for KEYTRUDA in earlier-stage cancers and across various tumor types is anticipated to drive robust revenue growth and expand market share in oncology.
  
• The recent ACIP recommendation to expand pneumococcal vaccination to include adults 50 to 64 for CAPVAXIVE, along with other new launches like WINREVAIR, could substantially increase revenue and market presence in key geographic markets.
  
• Efforts to enhance promotional activities and educational initiatives for GARDASIL in China and other regions aim to overcome current inventory challenges and achieve revenue growth through increased patient activation and demand.

Merck Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Merck's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.2% today to 35.5% in 3 years time.
• Analysts expect earnings to reach $26.4 billion (and earnings per share of $10.26) by about November 2027, up from $12.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $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 15.2x on those 2027 earnings, down from 20.1x today. This future PE is lower than the current PE for the GB Pharmaceuticals industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 0.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Merck Future Earnings Per Share Growth

Risks

• Declining GARDASIL sales in China, primarily due to inventory issues and slowing female demand, pose a significant risk to Merck’s revenue projections, as Merck must rely on increased male vaccinations for future growth.
  
• The expiration of agreements with J&J for REMICADE and SIMPONI will lead to a reduction in revenue streams for Merck, impacting near-term revenue growth.
  
• Increased competition in the pneumococcal vaccine market, particularly with 20-valent vaccines, could hinder growth of CAPVAXIVE and impact overall revenue from this segment.
  
• Potential entry of local HPV vaccine competition in China poses a threat to Merck's market share in a key growth market, which could adversely affect future revenue streams.
  
• External factors such as pricing pressures and foreign exchange impacts, evident from previous quarters, could continue to pose a risk to Merck's profit margins and earnings.
  

Valuation

• The analysts have a consensus price target of $131.08 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 $155.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $74.4 billion, earnings will come to $26.4 billion, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 5.9%.
• Given the current share price of $96.54, the analyst's price target of $131.08 is 26.4% 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.