Merck vs. Bristol-Myers: Analyst Views Differ After Q3 Earnings

Key Points

• Merck and Bristol-Myers beat on revenue and earnings this week; however, analysts have different opinions on each stock. 
• Both companies face patent cliffs by the end of the decade on their highest revenue-generating drugs.
• There may be more short-term upside for Merck stock but it might be difficult to take a long position in either stock at this time.  

With many of the Magnificent 7 stocks reporting earnings the week of October 28, investors’ attention was on technology stocks. But that means you may have overlooked two biopharmaceutical companies that delivered solid earnings reports.  

Merck & Co. Inc. NYSE: MRK and The Bristol-Myers Squibb Co. NYSE: BMY beat analysts' estimates on the top and bottom lines. Revenue for both companies was higher than in the same quarter in 2023, but both companies reported lighter year-over-year earnings. For Bristol-Myers, the earnings per share (EPS) of $1.80 was 10% lower than the $2.00 it recorded in 2023. Merck reported an even steeper EPS drop of 26%. 

However, the picture looks different when you look at how analysts view the stock. The Bristol-Myers analyst forecasts on MarketBeat have a consensus price target of $53.08 for BMY stock, a 2.5% decrease from the closing price on November 1. The Merck analyst ratings show a consensus price target of $131, a 27.9% increase for the stock. 

For reasons that aren’t entirely clear, pharmaceutical stocks are often out of favor with institutional investors when interest rates are falling. However, that is less true for large-cap stocks like Merck and Bristol-Myers. Still, it’s important to understand why analysts may have different opinions on these two sector leaders.  

Both Companies Face Patent Cliffs 

When a biopharmaceutical company brings a drug to market, they have patent protection for a period of time. However, investors are keenly aware of the patent cliff. That is, the point at which a drug loses patent protection and will have to compete with biosimilar competition.  

For Merck, the drug that concerns investors is Keytruda. The blockbuster cancer drug faces patent expiration in 2028. Keytruda accounted for $7.3 billion of the company’s $16.1 billion topline in Q2 2024. That’s why investors are concerned. Three years may seem like a long time, but it’s short enough to give long-term investors some concern.  

Bristol-Myers faces a similar patent cliff. In this case, the drug company has its top three revenue generators (Revlimid, Opdivo, and Eliquis) facing patent expiration by the end of the decade.  

Can Strong Pipelines Save the Day?

However, as a company like AbbVie Inc. NYSE: ABBV has shown investors, the patent cliff doesn’t have to be bearish. AbbVie has lost patent protection on Humira but is proving to investors that it has drugs that are capable of making up a good bit of that revenue.  

Merck has a lengthy pipeline with more than 80 candidates in Phase 2 trials and 30 in Phase 3 trials. However, there isn’t a single candidate that would be a direct replacement for Keytruda.  

Bristol-Myers also has an expansive pipeline with 51 candidates in development. Like Merck, the company doesn’t have a direct replacement for Revlimid, Opdivo, or Eliquis. However, one of its Phase 3 candidates, Cobenfy, is targeting indicators for adjunctive schizophrenia and psychosis in Alzheimer’s Disease.  

Buy the Dip, Ride the Hot Hand, or None of the Above? 

Merck and Bristol-Myers stocks have been moving in different directions in 2024. Post earnings, BMY stock is up 8.6% in 2024 on the heels of a 15.7% spike in the last three months. And even after the company’s earnings report, the stock is up 7.3% for the week ending November 1. By contrast, MRK stock is down 6.15% this year, with a drop of 10.1% in the last three months. And despite the double beat, the stock is down 1.6% for the week.

The short interest on each stock may provide you with some short-term direction. Short interest on BMY is up 12.3% in the last month. By contrast, short interest in MRK stock is down over 4% over the same period. 

That means Merck may be a better option in the short term. But for buy-and-hold investors, the only certainty is likely to come from the attractive dividend yields that both stocks offer.