Shares of Merck & Co. (MRK) rose 3% after the pharmaceutical giant posted strong Q3 financial results and boosted its guidance for full-year 2019 adjusted EPS, notes Jason Clark, value expert and contributing editor to The Prudent Speculator.
Merck turned in adjusted EPS of $1.51, versus consensus expectations of $1.24. Revenue for the quarter was $12.4 billion, compared to forecasts calling for $11.6 billion.
Merck's key growth driver, oncology drug Keytruda, experienced sales growth of 62% to $3.1 billion versus Q3 2018. Merck also enjoyed strong trends in human vaccines, with sales growing 17% year-over-year.
“We achieved another quarter of strong revenue and earnings growth as we continue to realize the benefits of our sustained investment in research and development and our focus on commercial execution,” said CEO Kenneth C. Frazier. “We are confident that the investments we are making now will allow us to convert cutting-edge science into medicines and vaccines of great benefit to patients and value to shareholders.”
Merck narrowed and raised its 2019 full-year revenue range to between $46.5 billion and $47.0 billion. The company also narrowed and raised its 2019 full-year adjusted EPS range to between $5.12 and $5.17.
We expect new cancer drug combinations will further propel Merck’s overall drug sales. We see additional upside in MRK shares as we still believe the market doesn’t fully appreciate its potential upside in immuno-oncology.
The continuing successful data on Keytruda in several indications offers Merck significant growth potential and reinforces the strong pricing power for the drug.
MRK also has a wide lineup of high-margin drugs outside of Keytruda, as well as a pipeline of new drugs which should ensure strong returns on invested capital over the long term.
The company boasts a history of returning cash to shareholders, a diversified revenue stream and solid free-cash-flow generation. The current dividend yield is 2.5%. We have boosted our target price to $94.
