Merck (MRKFree Merck Stock Report), a New Jersey-based drugmaker and Dow-30 component, has posted second-quarter results that exceeded our expectations. Reported earnings of $1.05 a share came in slightly ahead of our $1.00 estimate, as stronger-than-expected revenue growth helped drive the outperformance. Despite the modest quarterly beat, management left its full-year earnings guidance unchanged at $3.75 to $3.85 a share. We are maintaining our 2012 share-net estimate at the upper end of this range, at $3.85. Investors seemed pleased with the report, overall, and Merck stock moved nicely higher on the news, setting a 52-week high in the process.

Worldwide revenues rose 1.3% year over year in the June period, to $12.31 billion, surpassing our $12.20 billion estimate. Growth was recognized across the company's three main operating segments, with Pharmaceutical sales increasing 2%, Consumer Care also up 2%, and Animal Health advancing 8%. In terms of Pharmaceuticals, which accounts for roughly 85% of total revenues, the company continued to see strong gains in sales of JANUVIA (+36%), JANUMET (+28%), ISENTRESS (+18%), and GARDASIL (+17%), helping to offset declines in generic victims REMICADE (-38%) and COZAAR/HYZAAR (-17%). Merck's top-selling product, SINGULAIR, continued to exhibit positive growth, rising 6%, to $1.43 billion. However, this trend is likely to change in the coming months as generic competition emerges.

In regard to SINGULAIR, the company continues to make preparations for its upcoming patent loss this August. In addition to aggressive cost cutting, which has included significant headcount reductions, Merck has been busy trying to develop new medicines to replace its blockbuster drug. Two potential pipeline candidates that could help foot the bill are ODANACITIB and SUVOREXANT. ODANACITIB is an osteoporosis medication that has shown considerable promise in late-stage studies. Merck plans to submit it to United States regulators for approval next year, but preliminary estimates suggest the drug could generate $2.5 billion in annual sales. SUVOREXANT is the company's insomnia medication, which management believes will be able to compete with generic versions of AMBIEN and LUNESTA. SUVOREXANT is said to have fewer side effects than the current options on the market and could be worth as much as $1 billion annually.

Looking out to 2015-2017, our investment thesis for Merck & Co. 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 long term. At present, Merck stock holds a superior Safety rank (1), and the company's Financial Strength (at A++) is our highest grade. An above-average dividend yield offers a nice income-component, as well.

About The Company:Merck & Co. is a leading manufacturer of human and animal healthcare 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.