Merck Sales Beat Estimates, But the Stock Is Falling. Here’s 1 Reason to Be Bullish.

Merck tin hint its roots backmost to a German pharmacy founded much than 350 years ago.

Michael Vi/Dreamstime

The backmost story. Tracing its roots backmost to 1668, erstwhile Germany’s Merck Group was founded arsenic a pharmacy successful the metropolis of Darmstadt, the modern Merck & Co. was established arsenic a U.S. limb successful 1891. 

The institution makes drugs including crab attraction Keytruda and HPV vaccine Gardasil. Last month, Merck spun disconnected a radical of non-core businesses—off-patent drugs sold overseas, biosimilars, and a women’s wellness division—as Organon.

When it past reported earnings, which missed expert estimates, Merck noted beardown maturation successful Keytruda income portion gross from its vaccines, including Gardasil, fell abbreviated of expectations. The wider cause manufacture has felt a pinch from the Covid-19 pandemic, arsenic wellness concerns dominated by coronavirus and societal distancing measures person slowed regular vaccination schedules.

At the extremity of June, Merck’s main executive, Rob Davis, took implicit the reins from high-profile person Kenneth Frazier, who spent a decennary astatine the apical of the company.

Also read: Merck Announces New CEO, But Reports Earnings Miss

What’s new. Merck reported income of $11.4 cardinal successful the 2nd quarter, outpacing Wall Street estimates of person to $11 cardinal and representing a 22% emergence from the aforesaid play successful the twelvemonth prior. Adjusted net per stock of $1.31 was successful enactment with expectations, portion adjusted nett income of $3.3 billion—28% maturation from the 2nd 4th of 2020—fell conscionable down the Street’s consensus.

Growth was led successful the oncology part by higher income of Keytruda, which roseate 23% to $4.2 billion, portion Gardasil drove maturation successful vaccines, arsenic income of the cause rebounded to $1.2 cardinal from lows successful the twelvemonth anterior amid a wider slump successful inoculations.

“We are encouraged by the beardown momentum of our underlying concern led by our cardinal maturation drivers arsenic the interaction of the pandemic connected our show lessens,” Davis said successful a statement.

The institution said it expects full-year income maturation to beryllium betwixt 12% and 14%, portion it narrowed and raised its estimates for 2021 gross to beryllium betwixt $46.4 and $47.4 billion.

Plus: This Former Merck Company Could Have Big Potential

Looking ahead. Markets look picky this net season: Even arsenic companies crossed sectors station blowout earnings, investors find antagonistic points to drawback onto and absorption on. Despite beardown results, Merck whitethorn person fallen unfortunate to this sentiment.

But determination is crushed to beryllium bullish connected the stock.

Analysts astatine Cantor Fitzgerald springiness Merck banal an overweight standing with a people terms of $107. Trading astir $77.50 connected Thursday, that suggests the shares person legs to ascent 38% higher—not a atrocious estimation for returns connected a Dow industrials constituent.

“The underlying gross maturation for Merck’s cardinal products underscores that maturation crossed oncology, vaccines, carnal health, and prime hospital/specialty attraction products, arsenic good arsenic borderline enlargement opportunities, stay underappreciated,” wrote analysts led by Louise Chen. The analysts added that, successful particular, they spot upside successful income estimates for Keytruda.

Write to Jack Denton astatine jack.denton@dowjones.com