Back to top

Analyst Blog

Zacks Equity Research

What's in Store for Merck KGaA (MKGAF) in Q3 Earnings?

PFE SGYP TKAI

Trades from $3

Merck KGaA is scheduled to report third-quarter 2016 earnings results on Nov 15. Let’s see how things are shaping up for this quarter.

The company reports results under three business sectors – Healthcare, Life Science and Performance Materials. Strong performance at Life Science, which was the catalyst behind sales growth in the last few quarters, should continue the growth trend in the to-be-reported quarter as well.

Sales at the Healthcare division are expected to be driven by products such as Erbitux, Gonal-f, and Euthyrox. However, the segment will see a decline in Rebrif sales, which are being hit by negative foreign exchange fluctuations in Latin America.

The Life Science division has witnessed solid organic sales growth last quarter driven by strong organic growth and synergies, and the integration of the Sigma-Aldrich business. This trend should continue in the third quarter as well.

Sales at Performance Materials are expected to be impacted by persisting destocking in the liquid crystals display industry. Moreover, we expect to see a dip in organic sales. However, the segment will benefit from the acquisition of Sigma-Aldrich Hitech business.

In its last earnings release, the company had raised its guidance for 2016 backed by a strong performance in the first half of the year. Sales are now expected in the range of €14.9–€15.1 billion (previous projection: €14.8–€15 billion). Sales are, however, expected to be hurt by foreign exchange impact of 3–5% due to continued devaluation of the Latin American currencies.

Moreover, at its 2016 Capital Market Day, the company provided an update on its objectives up to 2018.  Beginning 2017, the company aims to gain approval of one medicine or new indication every year. Merck KGaA expects to generate sales of €4 billion from products that are currently in its pipeline by 2022.

Merck KGaA, in collaboration with Pfizer Inc. (PFE - Free Report) , is evaluating avelumab in several phase III studies for indications such as gastric cancer, platinum-resistant/refractory ovarian cancer, bladder cancer and advanced renal cell carcinoma. In Oct 2016, the company’s Marketing Authorization Application (MAA) for avelumab for the treatment of metastatic Merkel cell carcinoma (MCC) has been validated by the European Medicines Agency (EMA). Investor focus should be on further updates from the company on the regulatory front.

Stocks that Warrant a Look

Here are a couple of health care stocks that you may want to consider, as our model shows that they have the right combination of elements – a positive Zacks Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – to post an earnings beat this quarter.

Tokai Pharmaceuticals, Inc. (TKAI - Free Report) has an Earnings ESP of is +18.42% and it carries a Zacks Rank #3.

Synergy Pharmaceuticals, Inc. (SGYP - Free Report) has an Earnings ESP of +18.18% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Best Place to Start Your Stock Search

Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>