With hundreds of companies having reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk decision.

Let's turn to Merck (NYSE:MRK). The pharmaceutical giant defied some pessimistic expectations by posting a 13% gain in 2012, besting the performance of the Dow Jones Industrial Average (DJINDICES:^DJI) despite having to deal with the expiration of important patents. Let's take an early look at what's been happening with Merck over the past quarter and what we're likely to see in its quarterly report on Friday.

Stats on Merck

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$11.47 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo Finance.

Will Merck make portfolios healthy?
Analysts are reasonably comfortable with their views on Merck, with their earnings-per-share estimates having fallen by just $0.02 per share in the past three months. But shareholders are less comfortable, as the stock has fallen more than 4% since late October.

Merck has done a good job of weathering the storm following the loss of patent protection for its Singulair asthma drug, which has been responsible for a substantial part of the company's revenue loss over the past year. The drug accounted for 11% of Merck's sales in 2011, but Merck has an impressive pipeline of drugs in advanced trials that are preparing to take Singulair's place in providing revenue for the company.

One question many people have is whether Merck will use a tactic similar to that of some of its rivals. With Abbott (NYSE:ABT) having spun off its pharmaceutical business into AbbVie and Pfizer (NYSE:PFE) launching an IPO of its Zoetis animal health unit, some believe Merck would do well to break itself up as well. This move has certainly freed up Abbott and AbbVie to go their separate ways, and it should give Pfizer flexibility to raise capital from Zoetis while still retaining a majority stake in the company. But Merck CEO Kenneth Frazier has argued that the company isn't interested in splitting itself up at this point, instead pursuing the goal of maintaining a footprint across several spaces.

In Merck's earnings report, investors should look for signs that Merck's diabetes drugs Januvia and Janumet are likely to become high-growth blockbusters. With the unfortunate explosion in diabetes, it's important for Merck to serve the growing population of those who need treatment. Meanwhile, the status of other high-profile drug prospects will also be important -- arguably more so than Merck's actual sales over the past few months -- in determining whether the company's shares can move higher from here.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.