Merck Third Quarter Earnings Preview

By Investopedia Staff | October 23, 2012 AAA

Analysts are expecting a drop in profit for Merck (NYSE:MRK) when it reports its results for the third quarter on Friday, October 26, 2012. The company reported profit of 94 cents a year ago, but the current consensus estimate anticipates earnings per share of 93 cents.

Investors should care about a company's quarterly earnings because it shows the state of the business over the past 90 days and provides guidance for the following 90 days. SEE: 5 Tricks Companies Use During Earnings Season

What to Expect: Analysts are expecting Merck to announce earnings of 93 cents per share, 1.1% less than a year ago, when the company reported earnings of 94 cents per share.

The consensus estimate has risen over the past month, from 92 cents, but it is still below the estimate of 96 cents from three months ago. Analysts are projecting earnings of $3.81 per share for the fiscal year.

Revenue for the quarter is expected to be $11.61 billion, short of last year's reported figure of $12.02 billion by 3.4%. Merck is expected to report revenue of $47.15 billion for the fiscal year.

Company Performance: Revenue has risen for four consecutive quarters now. It rose 1.3% in the second quarter, 1.3% in the first quarter, 1.7% in the fourth quarter of the last fiscal year and 8.1% in the third quarter of the last fiscal year.

MRK's P/E ratio of 21.3 is above the industry average of 14.48. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. Perhaps one of the most widely-used stock analysis tools is the price-to-earnings ratio, or P/E. High P/E stocks could be "growth" stocks, while low PE stocks may be "value" stocks. SEE: Understanding The P/E Ratio

Over the past quarter, the stock price has increased from $42.62 on July 25, 2012 to $46.48. Merck's best recent streak was when its price gained $2.65 per share between August 23, 2012 and October 11, 2012.

The Competition: Merck is a global research-driven company that develops and manufactures a range of innovative pharmaceutical products to improve human and animal health. Analysts are optimistic about Merck, with 10 of 17 assigning it a buy rating. They have grown a bit more optimistic about the stock, as the number of buy ratings has inched up over the past three months.

The company's closest competitor in the biotechnology and drugs industry is Johnson & Johnson (JNJ). Analysts are less optimistic about Merck than about Johnson & Johnson. Fourteen out of 22 analysts rate the latter a buy.

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