Here’s what to know beyond why Merck & Co., Inc. (MRK) is a trending stock
Merck (MRK) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.
Shares of this pharmaceutical company have returned -4.2% over the past month compared to the +7.8% change in the Zacks S&P 500 composite. Industry Zacks Large Cap Pharmaceuticals, to which Merck belongs, lost 2% over this period. Now the key question is: where could the stock be heading in the near term?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
Merck is expected to post earnings of $1.76 per share for the current quarter, representing a year-over-year change of +0.6%. Over the past 30 days, the Zacks consensus estimate has changed by -5.1%.
The current year earnings consensus estimate of $7.31 indicates a year-over-year change of +21.4%. This estimate has remained unchanged for the past 30 days.
For the next fiscal year, the consensus earnings estimate of $7.19 indicates a change of -1.7% from what Merck was expected to report a year ago. Over the past month, the estimate has changed by +0.4%.
With an impressive externally audited track record, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance, as it effectively harnesses the power of earnings estimate revisions. . The magnitude of the recent shift in the consensus estimate, along with three other factors related to earnings estimates, resulted in Zacks ranking No. 2 (buy) for Merck.
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a business.
For Merck, the current quarter sales consensus estimate of $14.38 billion indicates a year-over-year change of +9.3%. For the current and future fiscal years, the estimates of $58.97 billion and $57.38 billion indicate variations of +17.6% and -2.7%, respectively.
Latest reported results and history of surprises
Merck reported revenue of $14.59 billion in the last reported quarter, representing a +28% year-over-year change. EPS of $1.87 for the same period versus $1.31 a year ago.
Compared to the Zacks consensus estimate of $13.85 billion, reported revenue is a surprise +5.36%. Surprise EPS was +11.98%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates every time during this period.
Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Merck is rated B on this front, indicating that it is trading at a discount to its peers. Click here to see values for some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com could help determine whether or not it’s worth paying attention to the market buzz about Merck. However, its Zacks No. 2 ranking suggests it could outperform the broader market in the near term.
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Merck & Co., Inc. (MRK): Free Inventory Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.