New Jersey-based drugmaker and Dow-30 component Merck (MRK Free Merck Stock Report) reported third-quarter GAAP earnings of $0.74 a share, versus $0.73 in the comparable period of 2018. The modest year-over-year improvement was driven by higher revenues (more below) and a lower share count, partially offset by increases in production, SG&A, and R&D costs. Meantime, adjusted earnings, which exclude one-time gains, losses, and other nonrecurring items, and are more closely followed by Wall Street, came in at $1.51 a share, versus $1.19 in Q3, 2018. The adjusted tally soared past consensus expectations looking for $1.24 on average, thanks in part to a roughly $800 million beat on the top line. Management responded by upping its full-year guidance, sending MRK shares several percentage points higher in Tuesday's trading session.  

In the September period, worldwide revenues surged 15% year over year, to $12.40 billion, marking the eighth-consecutive quarter of top-line growth. Performance continued to be fueled by strong momentum in blockbuster immunotherapy drug KEYTRUDA (+62%, to $3.01 billion) and top vaccine asset GARDASIL (+26%, to $1.32 billion), both of which topped analyst expectations. The former reflected improved uptake trends in non-small cell lung cancer and several other indications, while the latter benefited from higher demand in China and price increases in the U.S. The top-line comp received additional support from double-digit gains in BRIDION (+31%), PROQUAD (+19%) and the Animal Health division (+10%), helping to mitigate softness in the JANUVIA/JANUMET franchise (-12%), owing to pricing pressure in the U.S., and continued generic erosion on cholesterol-lowering drugs ZETIA and VYTORIN. 

Due to the better-than-expected Q3 showing and an improved operational outlook, management increased it full-year guidance for the third time this year. The company now anticipates 2019 adjusted earnings of $5.12-$5.17 a share (previously $4.84-$4.94) on revenues of $46.5 billion-$47.0 billion (previously $45.2 billion-$46.2 billion). In our view, the near- and long-term growth stories remain heavily tied to the continued success and development of KEYTRUDA, which has emerged as the clear leader in the immuno-oncology space and has also established a dominant position in the most lucrative segment of the market, lung cancer. Peak annual sales estimates have been upped consistently over these past few years as the drug continues to gain market share and rack up approvals across various indications. Some projections suggest that the franchise could be a $16 billion-a-year contributor by 2025. Through the first nine months of 2019, it has generated $7.97 billion, representing year-over-year growth of 59%.

All told, we continue to view Merck as an attractive option for investors seeking participation in the large pharmaceutical space. The stock boasts an above-average dividend yield and scores well across all of our proprietary risk metrics. The company's Financial Strength grade is also top notch (A++).

About The Company: Merck & Co. is an international developer, manufacturer, and distributor of pharmaceuticals. Important product names include JANUVIA/JANUMET (type-2 diabetes); ZETIA/VYTORIN (hypercholesterolemia); GARDASIL (vaccine); KEYTRUDA (lung cancer); and REMICADE (arthritis). In 2014, the company made three significant acquisitions: Schering-Plough, Idenix Pharmaceuticals, and Cubist Pharmaceuticals.

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