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Merck & Co. Inc. (MRK - Analyst Report) is scheduled to report its third quarter 2013 results on Oct 28, 2013 before the opening bell.

We remind investors that Merck has delivered positive earnings surprises in each of the last four quarters with an average beat of 4.01%. Last quarter, the company came up with a 2.44% positive surprise. Let’s see how things are shaping up prior to the announcement.

Factors at Play

Although Merck’s second quarter 2013 earnings beat expectations, the overall results were disappointing. With Singulair and a few other products facing generic competition, we expect the top- and bottom-line to remain under pressure this quarter.

Other headwinds include unfavorable currency movement and pipeline setbacks. Meanwhile, Merck received a complete response letter (CRL) from the U.S. Food and Drug Administration (FDA) for the resubmission of the New Drug Application (NDA) for sugammadex sodium injection (neuromuscular reversal agent).

These challenges should be partially countered by the company’s cost-cutting initiatives and share buybacks.

Earnings Whispers?

Our proven model does not conclusively show that Merck will beat earnings this quarter as a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 to be able to beat Zacks Consensus Estimates.

That is not the case here as you will see below.

Zacks ESP: The ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate currently stand at 88 cents.

Zacks Rank #4 (Sell): Merck’s Zacks Rank #4 when combined with a 0.00% ESP indicates a likely earnings miss in the third quarter.

We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Actavis plc (ACT - Analyst Report), with Earnings ESP of +0.48% and a Zacks Rank #2 (Buy).

Endo Health Solutions Inc. (ENDP - Analyst Report), with Earnings ESP of +0.89% and a Zacks Rank #3 (Hold).

Mylan, Inc. (MYL - Analyst Report), with Earnings ESP of +1.28% and a Zacks Rank #3 (Hold).

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