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What’s Expected for Merck’s Q3 2018 Earnings

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Earnings trends

Analysts expect Merck (MRK) to report GAAP net income of $2.23 billion and GAAP EPS of $0.83 in the third quarter of 2018. In Q2 2018, the company’s GAAP net income fell YoY (year-over-year) from $1.9 billion to $1.7 billion, and its GAAP EPS fell YoY from $0.71 to $0.63. Merck’s non-GAAP net income grew ~3% YoY in Q2 2018, to $2.9 billion from $2.8 billion, and its non-GAAP EPS grew ~5% YoY from $1.01 to $1.06.

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Keytruda, a key driver

Keytruda is expected to boost Merck’s growth significantly. In August, the FDA approved Keytruda’s label expansion for its use in combination with pemetrexed or Eli Lilly’s (LLY) Alimta and platinum-based chemotherapy as a first-line treatment for metastatic nonsquamous non-small cell lung cancer. In September, the European Commission approved Keytruda’s label expansion for the same indication.

In July, based on results from Merck’s Phase 2 KEYNOTE-224 trial, the FDA granted priority review to the company’s supplemental biologics license application for Keytruda’s label expansion for advanced hepatocellular carcinoma. Its Prescription Drug User Fee Act date is November 9. This approval could significantly boost Merck’s revenue growth. Keytruda revenue grew ~114% in the first half of 2018 to $3.1 billion.

Peer comparison

In the third quarter, analysts expect Pfizer’s (PFE) and Johnson & Johnson’s (JNJ) net income to grow ~20.6% and ~33.11% YoY, respectively, to $3.4 billion and $5.0 billion, and their EPS to grow 21.99% and 35.04% YoY to $0.57 and $1.85. Merck’s earnings growth could boost the iShares Core High Dividend ETF (HDV). Merck, Johnson & Johnson, and Pfizer comprise ~4.05%, ~7.43%, and ~6.49%, respectively, of HDV.

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