Merck (MRK) drops as full-year forecast misses consensus

Shares of Merck (NYSE: MRK) tumbled more than 4% Thursday despite the New Jersey-based pharmaceutical giant reporting stronger-than-expected FQ4 results.

Merck reported Q4 EPS of $1.62 on revenue of $13.8 billion, beating the consensus for earnings of $1.53 on revenue of $13.65B. Molnupiravir sales fell 13% year-over-year to $825 million, still much higher than the consensus of $376M. Keytruda sales rose 19% to $5.45B, in line with the analyst estimates.

Despite the earnings and revenue beat, the focus is on the company's guidance, which disappointed investors. For the full year, the pharmaceutical firm sees EPS between $6.80 and $6.95, a miss compared to the consensus of $7.36. Revenue is seen in the range of $57.2-58.7B, with the midpoint of the guidance ($57.95B) coming in below the consensus of $58.07B.

The company added that the Imago deal and Kelun-Biotech partnership are expected to have an impact of $0.53 per share on 2023 adjusted EPS.

Reacting to the report, Credit Suisse analyst Trung Huynh said the initial 2023 guidance was "broadly in line with expectations.

"For 2023 Merck has guided for reported sales of $57.2-58.7bn, this compares to cons. and CS expectations of $58.0bn and $57.9bn. Reported EPS for 2023 is expected to be $6.80-6.95 vs. cons. $7.33 and CSe. $7.33. However, Merck previously disclosed the Imago acquisition and Kelun collaboration charge of c.$1.4bn will impact 2023 EPS by $0.53. As a sensitivity, this lowers cons. EPS to $6.80 and CS EPS to $6.80, which is in line with Merck EPS guidance," explained Huynh, who has an Outperform rating and a $120 price target on the stock.

Morgan Stanley's Terence Flynn maintained an Equal-Weight rating and $100 price target on Merck shares, stating they expect Merck shares to be "relatively flat."

"2023 rev guidance of $57.2bn-$58.7bn (midpoint of $57.95, incl. 2% F/X impact and including Lagevrio sales of $1bn) bracketed Refinitiv cons of $57.9bn, but is below our $59.7bn. 2023 EPS guidance of $6.80-$6.95 (midpoint of $6.88) is below MSe/Refinitiv consensus $7.54/$7.36," wrote Flynn.

By Senad Karaahmetovic

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