Will Merck (MRK) Disappoint This Earnings Season? - Analyst Blog

Merck & Co. Inc. MRK is scheduled to report first quarter 2014 results before the opening bell on Apr 29. Last quarter, Merck had posted an earnings surprise of -1.12%. Let's see how things are shaping up for this announcement.

Factors at Play

Merck's top line is facing significant pressure due to strong generic competition for several products. Moreover, Januvia's performance has been lagging expectations. Januvia is facing rebate and pricing pressure due to the entry of new products in the diabetes market. Other headwinds include the impact of bi-annual price cuts in Japan and the re-pricing of the DPP-IV (dipeptidyl peptidase) inhibitor class in the first quarter.

Unfavorable currency movement will also impact the company's topline.

Meanwhile, cost cutting efforts and the performance of the vaccines, immunology and HIV segments should partially offset the impact of genericization.

Earnings Whispers?

Our proven model does not conclusively show that Merck is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Merck is -1.27% since the Most Accurate estimate is $0.78 while the Zacks Consensus Estimate is $0.79.

Zacks #3 Rank (Hold): Merck's Zacks Rank #3 (Hold) has little effect on the predictive power of ESP because the Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that they have the right combination of elements, i.e., a positive Zacks Earnings ESP and a Zacks Rank #1, #2 or #3.

Teva Pharmaceutical Industries Ltd. TEVA has an Earnings ESP of +0.82% and holds a Zacks Rank #2 (Buy). Teva will report first quarter earnings on May 1.

Actavis plc ACT has an Earnings ESP of +3.34% and holds a Zacks Rank #2. Actavis will report first quarter earnings on Apr 30.

Forest Laboratories Inc. FRX has an Earnings ESP of +9.09% and holds a Zacks Rank #3. Forest Labs will report fourth quarter earnings on Apr 29.