Bill Cara

Merck (MRK) Quarterly Report for Maverick Investors

October 27, 2023,   $102.82

Business Overview:

Merck is a key provider of prescription medicines, vaccines, biological therapies, animal health, and consumer care products. Founded in 1891. Headquartered in Kenilworth, New Jersey

  • Operational Segments: The company operates through three segments: Pharmaceutical, Animal Health, and Other.
  • Pharmaceutical Segment: Involves human health pharmaceutical and vaccine products.
  • Animal Health Segment: Focuses on the discovery, development, manufacturing, and marketing of animal health products for various species.
  • Other Segment: Sales for non-reportable healthcare services.

Maverick Guidance:

  • Short-term technical buy/sell recommendation: AVOID UNTIL JANUARY. P&F HAD DOUBLE-BOTTOM BREAKDOWN ON 02AUG23
  • NOTEWORTHY: Earnings have missed the past nine quarters:
    • 3Q2023 (Oct 26) reported EPS of $2.13 ($1.86 GAAP) vs forecast of 1.95 and $1.85 for the same quarter the prior year
    • 4Q2023 (to be reported 31Jan24) is forecasted at $0.98 vs. $1.62 for the same quarter the prior year
  • Earnings pullbacks are due to reduced sales of COVID-19 products, which is probably over, and e2024 earnings should be robust.

Consideration for Maverick Portfolio:

  • Appropriate for risk profile score of 16-21. The Moderately Conservative Investor aims for a balanced approach that combines growth and stability. The Maverick CAUTIOUS GROWTH portfolio is designed to achieve modest medium-term total returns.
  • Appropriate for risk profile score of 22-29. The Moderate Investor seeks to balance caution and ambition, aiming for reasonable growth while managing risk. The Maverick MODERATE GROWTH portfolio is designed to maintain a stable yet potentially rewarding financial strategy by including a mix of conservative and moderately aggressive Dow 30 stocks.
  • Appropriate for risk profile score of 30-35. The Moderately Aggressive Investor is willing to take on higher risk for the potential of higher returns. The Maverick DYNAMIC GROWTH portfolio includes a higher allocation of high-growth-oriented Dow 30 stocks to align with this risk-tolerant approach.

Internal Strategic Factors


  • Exceptional customer experience strategy with personalization and innovation.
  • Sustainable margins and high customer retention.
  • Strong talent recruitment and focus on digital transformation.


  • High operating costs and overdependence on dominant products.
  • Vulnerability to powerful channel partners and slow adaptation to change.
  • Slow decision-making and limited market penetration in new regions. Top of Form

External Strategic Factors


  • Leverage digital tech, government spending, and 5G expansion.
  • Reconfigure the business model and use analytics for an advantage.
  • Collaborate with new partners, adopt manufacturing automation, and capitalize on changing consumer behavior.


  • Declining consumer confidence and shorter product life cycles.
  • European instability and trade wars.
  • An aging population and economic stagnation with rising wages.
  • Regulatory challenges and cybersecurity threats.

Market Guidance:

  • Consensus Analyst Ratings— MarketBeat = MODERATE BUY, TipRanks = STRONG BUY
  • 16 Wall Street analysts have offered 12-month price targets in the last 3 months. There are 13 Buy, 3 Hold, and zero Sell. (from TipRanks)
  • Based on 16 Wall Street analysts offering 12-month price targets in the last 3 months, the average price target is $125.38, with a high forecast of $135.00 and a low forecast of $113.00. The average price target represents a +21.9% change from $102.82. (from TipRanks)
  • Dividend Yield: $0.73 per share paid quarterly to yield 2.77%.
  • Dividend growth for 15 years. (from TipRanks)
  • Technical Sentiment (based on Technical Indicators and Moving Averages):
    • com = Daily (SELL) and Weekly (STRONG SELL)
    • TipRanks = Daily (BUY) and Weekly (BUY) * note the differing calculations.

Value Line Guidance:

  • Company Financial Strength Rating:  A++
  • Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
  • Share Price Safety:       1 of 5               
  • Market Timing:             3 of 5               
  • Technical Rank:            1 of 5               
  • Beta:                                  0.75                
  • Stock’s Price Stability:             100/100           
  • Price Growth Persistence:      60/100             
  • Earnings Predictability:          95/100             
  • Average Annual PE:                  14                                
  • Average Annual Sales Growth in the past 5 years:               +7.0% 
  • Average Annual Sales Growth for the next 5 years:             +5.0% 
  • Average Annual Cash Flow Growth in the past 5 years:     +6.0% 
  • Average Annual Cash Flow Growth for the next 5 years:   +7.5%
  • Average Annual Earnings Growth in the past 5 years:       +11.5%
  • Average Annual Earnings Growth for the next 5 years:    +8.5% 
  • Average Annual Dividend Growth in the past 5 years:      +5.0%
  • Average Annual Dividend Growth next 5 years:                  +7.0% 
  • Average Annual Dividend Yield 3 to 5 years:                       +8.0% 

Financial Performance

  • 10-year Average Annual Total Return: +12.72% (through Oct 26, 2023) (Dow 30 2nd quartile).
  • EPS 2022: $7.482023: e$4.78 2024:  e$8.06  (from Value Line and MarketBeat)
  • Average Annual PE: 14 (VL Quarterly Report)
  • PEG Ratio: 2.83 (FinViz)
  • Beta: 0.75 (ValueLine)

Quarterly Reports Summaries (including Revenue, Cash Flow, Earnings):

3Q2023 Quarterly September:

  • Q3 2023 revenue: $15.96 billion, a 6.7% increase year-over-year.
  • EPS: $2.13, up from $1.85 in the same period last year.
  • The full-year revenue outlook was raised to $59.7 billion to $60.2 billion.
  • Next quarter EPS guidance lowered to $1.33 to $1.38 due to a $5.5 billion charge related to collaboration with Daiichi Sankyo.
  • Revenue exceeded consensus estimates by 3.80%.
  • Significant EPS surprise of 9.79%.
  • Keytruda sales in the U.S. showed a year-over-year increase of 13.9%.
  • RotaTeq sales decreased by 39.1% compared to the same quarter last year.
  • Other segments, such as Animal Health and Pneumovax, saw moderate YoY revenue changes.

2Q2023 Quarter June:

  • Merck is expected to experience a pullback in profitability due to slowing top-line growth.
  • Decline in COVID-19-related sales, particularly Lagevrio.
  • A one-time charge of $10.2 billion tied to Prometheus Biosciences acquisition.
  • Projected earnings fall by 60% in 2023.
  • The expectation is to regain traction in 2024, especially with Keytruda’s strong performance.
  • Possible continued M&A activity.

1Q2023 Quarter March:

  • Merck started FY2023 on a positive note with better-than-expected first-quarter results.
  • Strong growth in Keytruda and Gardasil franchises offset declining Lagevrio sales.
  • Raised 2023 adjusted earnings estimate to $7.00 a share.
  • Leadership increased full-year forecasts.
  • Keytruda and Gardasil performed well, and Bridion extended its patent.
  • The addition of Prometheus Biosciences is expected to boost Merck’s immunology presence.
  • Anticipated M&A activity to strengthen the portfolio.

4Q2022 Quarter December:

  • Merck closed 2022 positively with strong earnings and sales performance.
  • Lagevrio and Keytruda were significant growth drivers.
  • Expectation of cooling in 2023 due to waning Lagevrio demand.
  • Positive outlook for 2024 with Keytruda’s market share gains and other oncology assets.
  • Strong defensive characteristics and an almost 3.0% dividend yield appeal to conservative investors.

The 3-to-5-year Operational and Financial Outlook:

  • Merck is forecast to grow earnings and revenue by 33.7% and 5% annually, respectively.
  • EPS is expected to grow by 34.1% per annum.
  • Return on equity is forecast to be 37.9% in 3 years.

FinViz Snapshot:

 10-Year Historical Price Chart:

Point & Figure Chart: (from,PWTAMANRNO[PA][D][F1!3!!!2!20]