Merck Slips 8% in a Month: Should You Buy, Hold or Sell the Stock?

Merck MRK stock has declined 7.8% in the past month — in roughly the span after it announced fourth-quarter 2024 results and provided a disappointing guidance for 2025.On Feb. 4, Merck announced its fourth-quarter and full-year 2024 results. While the drug giant beat estimates for both earnings and sales, its financial outlook for 2025, provided along with the earnings release, fell short of investor expectations.Sales of human papillomavirus vaccine, Gardasil, which is Merck’s second largest product, declined 17% in the fourth quarter due to weak demand trends in China. Sales of new pulmonary arterial hypertension drug, Winrevair, also missed estimates.The decline in Merck’s stock price post-earnings has left investors confused about whether to buy, hold or sell MRK stock. Let’s understand the company’s strengths and weaknesses to better analyze how to play Merck’s stock.Keytruda: Merck’s Biggest StrengthMerck boasts more than six blockbuster drugs in its portfolio, with blockbuster PD-L1 inhibitor Keytruda being the key top-line driver. Keytruda, approved for several types of cancer, alone accounts for around 50% of the company’s pharmaceutical sales. The drug has played an instrumental role in driving Merck’s steady revenue growth in the past few years.Keytruda’s sales are gaining from rapid uptake across earlier-stage indications, mainly early-stage non-small cell lung cancer. Continued strong momentum in metastatic indications is also boosting sales growth. The company expects continued growth from Keytruda, particularly in early lung cancer.Merck is working on different strategies to drive Keytruda's long-term growth. These include innovative immuno-oncology combinations, including Keytruda with LAG3 and CTLA-4 inhibitors. In partnership with Moderna MRNA, Merck is developing a personalized mRNA therapeutic cancer vaccine (V940/mRNA-4157) in combination with Keytruda for patients with certain types of melanoma and NSCLC. The companies are conducting pivotal phase III studies on V940, in combination with Keytruda, for earlier-stage and adjuvant NSCLC and adjuvant melanoma. Merck is also developing a subcutaneous formulation of Keytruda that can extend its patent life.MRK’s Pipeline Progress & Strategic M&A DealsMerck made meaningful regulatory and clinical progress in 2024 across areas like oncology (mainly Keytruda), vaccines and infectious diseases while executing strategic business moves like the acquisitions of Eyebiotech Limited and Harpoon Therapeutics. In 2024, Merck also acquired a next-generation CD3xCD19 bispecific antibody for the treatment of B-cell associated diseases from a private biotech called Curon Biopharmaceutical and signed license agreements with Chinese biotechs, Hansoh and LaNova.Merck's phase III pipeline has almost tripled over the past three years, positioning it well to launch several new vaccines and drugs over the next five years, with many having blockbuster potential. Merck’s new 21-valent pneumococcal conjugate vaccine, Capvaxive, and Winrevair have the potential to generate significant revenues for Merck over the long term. Both the products are witnessing a strong launch.Merck has other promising candidates in its late-stage pipeline, such as MK-0616, an oral PCSK9 inhibitor for hypercholesterolemia, tulisokibart, a TL1A inhibitor for ulcerative colitis and Daiichi-Sankyo-partnered antibody drug conjugates. A regulatory application seeking approval for clesrovimab, its respiratory syncytial virus vaccine, is under review in the United States, with an FDA decision expected in June.MRK’s Keytruda Faces Patent Expiration in 2028Merck is heavily reliant on Keytruda. Though Keytruda may be Merck’s biggest strength and a solid reason to own the stock, it can also be argued that the company is excessively dependent on the drug and should look for ways to diversify its product lineup.There are rising concerns about the firm’s ability to grow its non-oncology business ahead of the upcoming loss of exclusivity of Keytruda in 2028.Also, competitive pressure might increase for Keytruda in the near future. In 2024, Summit Therapeutics SMMT reported positive data from a phase III study (conducted in China by partner Akeso) in patients with locally advanced or metastatic NSCLC, in which its lead pipeline candidate, ivonescimab, a dual PD-1 and VEGF inhibitor, outperformed Keytruda. Summit believes iivonescimab has the potential to replace Keytruda as the next standard of care across multiple NSCLC settings.Declining Sales of Gardasil in ChinaSales of Gardasil declined 3% in 2024 due to a weak performance in China, which resulted from sluggish demand trends amid an economic slowdown. Lower demand in China resulted in above-normal channel inventory levels at Merck’s commercialization partner in China, Zhifei. Accordingly, Merck has decided to temporarily halt shipments of Gardasil in China from February through at least mid-year 2025 to allow Zhifei to burn down existing inventory.Given the economic conditions in China, Merck withdrew its previously issued long-term guidance of generating more than $11 billion in sales from Gardasil by 2030.However, Gardasil sales remain strong in almost every major region outside China, including the United States. Merck is also seeing weakness in the diabetes franchise and the generic erosion of some drugs.MRK’s 2025 Guidance Fails to ImpressMerck expects revenues to be in the range of $64.1-$65.6 billion in 2025, representing year-over-year growth in the range of 2% to 4%. However, the guidance fell short of expectations. In 2025, Merck expects top-line growth to be driven by Keytruda, new products, Welireg, Winrevair, Capvaxive and the Animal Health segment, which will be partially offset by declining sales of Gardasil in China.Also, the expiration of MRK’s agreement with J&J JNJ for Remicade and Simponi is expected to hurt the top line. The Medicare Part D redesign is expected to hurt sales by approximately $400 million, primarily affecting Winrevair and oncology products, including Welireg, Lynparza and Lenvima.The 2025 revenue guidance assumes less than $1 billion in revenues from Gardasil in China at the high end and no further shipments at the low end. The guidance also includes a negative impact on sales from foreign exchange of approximately 2%.Excluding sales of Gardasil in China in 2024 and 2025 and the negative impact of currency, revenues are expected to rise 7% to 9%.The earnings per share guidance in the range of $8.88 to $9.03 was also below expectations.MRK Stock Price, Valuation & EstimatesMerck’s shares have lost 28.7% in the past year compared with a increase of 0.1% for the industry. The stock has also underperformed the sector and the S&P 500 Index, as seen in the chart below. The stock is also trading below its 50-day and 200-day moving average.Merck Stock Underperforms Industry, Sector & S&P 500Image Source: Zacks Investment ResearchFrom a valuation standpoint, Merck appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 9.89 forward earnings, lower than 17.48 for the industry as well as its 5-year mean of 13.22.MRK Stock ValuationImage Source: Zacks Investment ResearchThe Zacks Consensus Estimate for 2025 earnings has declined from $9.26 to $9.01 per share over the past 30 days, while that for 2026 has declined from $10.17 to $9.89 per share over the same timeframe.MRK Estimate MovementImage Source: Zacks Investment ResearchShort-Term Investors May Consider Selling MRK StockMerck has one of the world’s best-selling drugs in its portfolio, generating billions of dollars in revenues. Though Keytruda will lose patent exclusivity in 2028, its sales are expected to remain strong until then.However, the company’s problems are too many at present, including persistent challenges for Gardasil in China, potential competition for Keytruda, the recent weak earnings report and a bearish outlook for 2025. All these factors have raised doubts about Merck’s ability to navigate the Keytruda loss of exclusivity period successfully.We believe investors with a long-term horizon should stay invested in MRK stock due to its strong fundamentals. However, short-term investors should consider selling this Zacks Rank #5 (Strong Sell) stock as the company may take some time to recover.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Johnson & Johnson (JNJ): Free Stock Analysis Report Merck & Co., Inc. (MRK): Free Stock Analysis Report Moderna, Inc. (MRNA): Free Stock Analysis Report Summit Therapeutics PLC (SMMT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks