Merck (MRK) investors have "limited near-term appetite" to return to the stock as Gardasil inventory remains elevated in China, with a key reassessment of demand not expected until mid-2025, UBS Securities said in a note emailed Thursday.

The firm estimates Q1 revenue at $15.4 billion, slightly below the $15.6 billion consensus, with earnings per share at $2.08 versus $2.14.

UBS forecasts Q1 Gardasil sales at $1.3 billion, about $100 million below consensus, citing high inventory levels and a "buy two, get one free" promotion in the Jiangsu region. Full-year sales could also fall short, with UBS projecting $6.1 billion versus the consensus of $6.7 billion.

"Despite $200 million in shipments to China in January, we see consensus mismodelling Gardasil sales for the quarter," UBS said.

Broadly though, the firm said it was aligned with the consensus on Q1 drug sales, such as for Keytruda where it was forecasting $7.4 billion in sales, the same as the consensus.

UBS warned that sentiment remains weak, and downside risks could materialize if Q1 numbers disappoint.

UBS expects Merck to reiterate its full-year revenue guidance of $64.1 billion to $65.6 billion, with a flat first half followed by stronger growth in H2 as Gardasil sales normalize. The firm projects fiscal 2025 revenue of $64.9 billion, slightly below the $65.2 billion consensus.

UBS maintains a buy rating on the stock with a $105 price target.

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