ISPH Inspire Pharmaceuticals, Inc. (MM)

Merck & Co. Inc. (MRK) is all set to announce its first quarter 2011 results on April 29, 2011, before the opening bell. The Zacks Consensus Estimate for the quarter is $0.84 per share, representing a year-over-year increase of 1.2%. Merck has been surpassing earnings estimates consistently in the last four quarters with a trailing four-quarter average of 6.0%. Merck is expected to report in line with the Zacks Consensus Estimate in the first-quarter of 2011.

Fourth Quarter 2010 Recap

Merck‘s earnings per share (excluding certain special items) for the fourth quarter of 2010 came in at $0.88, $0.05 above the Zacks Consensus Estimate and $0.09 above the year-ago earnings. However, including adjustments, the company suffered a loss of $0.17, well below the year-ago earnings of $2.35.

Revenues for the final quarter of 2010 climbed 20% to $12.1 billion, above the Zacks Consensus Estimate of $11.5 billion. (Read our full coverage on the earnings report at Merck Beats but Guides Lower )

Agreement of Estimate Revisions

Estimate revisions for Merck have been scarce over the past month. Over the past thirty days, only 3 of the 14 analysts covering Merck for the first quarter of 2011 have revised their earnings estimates.

While 2 of them have increased their earnings estimates, 1 has moved in the opposite direction. The annual estimates for 2011 have also not been revised by majority of  the analysts. Only 5 of the 19 analysts following Merck for 2011 have revised their estimates. While 2 analysts have upped their estimates, 3 have moved in the opposite direction.

We note that Merck is facing issues such as patent expirations of key drugs, EU pricing pressure, US health care reform, and pipeline setbacks. To combat the generic threat, Merck is looking to expand via acquisitions. We believe the recently announced acquisition of Inspire Pharmaceuticals, Inc. (ISPH) is a step in that direction. (Refer to Merck Sees Inspiration in Eye Care for the detailed coverage of the deal).

We believe that the lack of estimate revisions by the analysts covering Merck reflects their cautious stance. We believe most analysts prefer to remain on the sidelines until further visibility is obtained regarding Merck’s response to the problems faced by it.

Magnitude of Estimate Revisions

Estimates for the first quarter of 2011 have remained static at $0.84 per share in the last 30 days due to a lack of significant estimate revisions by the analysts following the stock. Estimates for 2011 have remained static at $3.69 over a similar time period.

Neutral on Merck

We currently have a Neutral recommendation on Merck supported by a Zacks #3 Rank (short-term Hold rating).

Inspire Pharmaceuticals, Inc. (MM) (NASDAQ:ISPH)
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