Merck (MRKFree Merck Stock Report), the country's second-largest drugmaker, has reported first-quarter earnings of $0.99 a share, falling just a hair below our $1.00 estimate. Sales of $11.7 billion also fell just short of our $11.8 billion forecast, but all-in-all, Merck's performance in the March period was relatively in line with what we had expected. In early morning trading, there was little reaction on Wall Street, as Merck's shares were up marginally in a generally, but moderately, firmer stock market.

On a year-over-year basis, first-quarter comparisons were positive with earnings increasing 8% on revenue growth of 1%. Sales at the company's three main operating segments all improved, with Pharmaceuticals increasing 3%, Animal Health up 8%, and Consumer Care rising 7%, helping to partially mitigate reductions in Alliance revenues and third-party manufacturing sales.

Looking at pharmaceuticals, which remains Merck's bread and butter (accounting for roughly 85% of total revenues), double-digit sales gains for Januvia, Janumet, Isentress, and Gardasil helped to offset declines in patent victims Remicade (-31%) and Cozaar/Hyzaar (-21%). Sales of the company's top-selling product, Singulair, continued to exhibit positive growth, rising 1%, to $1.3 billion.

Focusing on the year ahead, the upcoming patent loss on Singulair in August remains the key talking point. Merck is still feeling the effects of generic competition on Remicade and Cozaar/Hyzaar, evidenced by continued top-line fallout in the first quarter, and the loss of Singulair is expected to add additional pressure. Singulair currently accounts for just under 12% of Merck's total revenues. The continued development of its core product line, as well as further pipeline investment, will be essential in offsetting the likelihood of lower Singulair sales post-2012. Encouragingly, management plans to file five major drugs for approval during the course of 2012 and 2013. For full-year 2012, management reiterated its earnings-guidance range of $3.75-$3.85 a share. Consequently, we are maintaining our prior estimates, targeting share net of $3.80 and revenues of $47 billion.

Longer term, our investment thesis in regard to Merck remains largely unchanged. While sales will likely be materially lower in the near term due to patent expirations, we believe new product contributions and continued growth of the existing product base should be enough to reinforce stability over the 3- to 5-year period. At present, Merck stock holds a superior Safety rank (1), and the company's Financial Strength (at A++) is excellent. Conservative income-oriented investors may find appeal in the stock's above-average dividend yield and well-covered payment.

About The Company: Merck & Co., Inc., is a leading manufacturer of human andanimal health care and specialty chemical products. Important product names include Singulair (asthma); Vytorin, Zocor (cholesterol-lowering agents); Fosamax (osteoporosis); Crixivan (HIV/AIDS); Vasotec, Prinivil (angiotensin converting enzyme (ACE) inhibitors for high blood pressure and angina); and Prilosec (gastro.). The company acquired Medco in November of 1993 and spun it off again in August of 2003. It acquired Schering-Plough in 2009.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.