Is Trending Stock Merck & Co., Inc. (MRK) a buy it now?

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.

Over the past month, shares of this pharmaceutical company have returned -6.1%, compared to the -10.2% change in the Zacks S&P 500 composite. During this period, the industry Zacks Large Cap Pharmaceuticals, of which Merck is a part, lost 7%. The key question now is: what could be the future direction of the title?

While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.

We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

For the current quarter, Merck is expected to post earnings of $1.74 per share, indicating a -0.6% change from the prior year quarter. The Zacks consensus estimate has changed by +0.7% over the past 30 days.

For the current year, the consensus earnings estimate of $7.33 indicates a change of +21.8% from the prior year. Over the last 30 days, this estimate has changed by +0.2%.

For the next fiscal year, the consensus earnings estimate of $7.19 indicates a change of -1.9% 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 change in the consensus estimate, along with three other factors related to earnings estimates, resulted in a Zacks No. 3 (hold) ranking for Merck.

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Expected revenue growth

While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.

For Merck, the current quarter sales consensus estimate of $14.4 billion indicates a year-over-year change of +9.5%. For the current and future fiscal years, the estimates of $59.04 billion and $57.94 billion indicate variations of +17.7% and -1.9%, 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.

Evaluation

No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.

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 , 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 .

As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on.), which helps determine whether a stock is overvalued, correctly valued, 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.

Conclusion

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 No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

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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.

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