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Merck Likely to Beat 1Q Earnings

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We expect Merck & Co. Inc. (MRK - Free Report) to beat earnings expectations when it reports first-quarter 2013 results before the opening bell on May 1, 2013.
Why a Likely Positive Surprise?

Our proven model shows that Merck has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP: The earnings Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) for Merck is +1.28% – the difference between the Most Accurate earnings estimate of 79 cents per share and the Zacks Consensus Estimate of 78 per share. This indicates a likely positive earnings surprise.

Zacks Rank #3 (Hold): Merck carries a Zacks Rank #3. Note that stocks with Zacks Rank of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered while going into an earnings announcement.

The combination of its Zacks Rank and Earnings ESP for Merck makes us confident of a positive earnings surprise in the to-be-reported quarter.

Drivers of Better-than-Expected Earnings

While headwinds remain in the form of the Singulair genericization, EU pricing pressure, unfavorable currency movement, US health care reform and pipeline setbacks, some of the company’s recent launches should start contributing significantly to the top line in the first quarter.

Products that should add significantly to revenues include hepatitis C virus (HCV) drug Victrelis, fertility drug Elonva, Saphris (acute treatment of schizophrenia and bipolar I disorder in adults), Simponi (treatment of certain inflammatory diseases), Dulera (asthma), and Daxas (chronic obstructive pulmonary disease) among others. Additionally we believe Merck’s Januvia (sitagliptin) for type-II diabetes should continue to benefit from regulatory restrictions imposed on competitor GlaxoSmithKline’s (GSK - Free Report) Avandia.

This company has delivered positive earnings surprises in the last four quarters with an average beat of 2.66%. We expect the trend to continue.

Other Stocks to Consider

Merck is not the only company looking up this earnings season. Here are some other stocks you may want to consider as our model shows these have the right combination of elements to post an earnings beat this season:

VIVUS Inc. (VVUS - Free Report) has an earnings ESP of +7.84% and holds a Zacks Rank #3.

Santarus, Inc. has an earnings ESP of +8.33% and holds a Zacks Rank #3.

In-Depth Zacks Research for the Tickers Above

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VIVUS, Inc. (VVUS) - free report >>

GlaxoSmithKline plc (GSK) - free report >>

Merck & Co., Inc. (MRK) - free report >>

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