Merck & Co., Inc. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Predictions

It's been a mediocre week for Merck & Co., Inc. (NYSE:MRK) shareholders, with the stock dropping 10% to US$113 in the week since its latest quarterly results. It looks like a credible result overall - although revenues of US$16b were in line with what the analysts predicted, Merck surprised by delivering a statutory profit of US$2.14 per share, a notable 11% above expectations. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

See our latest analysis for Merck

Taking into account the latest results, the most recent consensus for Merck from 24 analysts is for revenues of US$64.2b in 2024. If met, it would imply a modest 2.7% increase on its revenue over the past 12 months. Per-share earnings are expected to shoot up 39% to US$7.55. In the lead-up to this report, the analysts had been modelling revenues of US$64.3b and earnings per share (EPS) of US$7.75 in 2024. The analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share numbers for next year.

It might be a surprise to learn that the consensus price target was broadly unchanged at US$141, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Merck analyst has a price target of US$155 per share, while the most pessimistic values it at US$120. Still, with such a tight range of estimates, it suggeststhe analysts have a pretty good idea of what they think the company is worth.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that Merck's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 5.5% growth on an annualised basis. This is compared to a historical growth rate of 9.1% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 9.6% annually. Factoring in the forecast slowdown in growth, it seems obvious that Merck is also expected to grow slower than other industry participants.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Merck. On the plus side, there were no major changes to revenue estimates; although forecasts imply they will perform worse than the wider industry. The consensus price target held steady at US$141, with the latest estimates not enough to have an impact on their price targets.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Merck analysts - going out to 2026, and you can see them free on our platform here.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Merck that you need to be mindful of.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com