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Merck & Co: A Fit for Most Equity Portfolios

The Value Line Investment Survey®, recently published a new report on Merck & Co. (MRK). The New Jersey-headquartered pharmaceutical behemoth employs more than 69,000 individuals and has a market capitalization that exceeds $210 billion. The equity has been a component of the Dow Jones Industrial Average since 1979.

“Merck & Co. stock, after weathering the late-2018 downdraft with little damage, has risen 15% in value over the past three months. The drugmaker's solid fourth-quarter results and a broader market recovery were key catalysts, helping to overshadow lingering political pressures related to drug pricing. In regard to the December period, adjusted earnings of $1.04 a share beat consensus expectations by a penny, driven by continued strong demand in the standout Keytruda franchise, which for the first time surpassed $2 billion in quarterly sales. Although management's 2019 guidance wasn't overly inspiring (which appears to be a common trend among the large pharma group of late), it did fit into Wall Street's projected ranges,” says Ian Gendler, Executive Director, Value Line Research, Here is Gendler’s analysis on Merck:

“We have raised our 2019 estimates. For the full year, the company is guiding for adjusted earnings of $4.57–$4.72 a share on sales of $43.2 billion–$44.7 billion, implying annual growth of 7% and 4%, respectively, at the midpoints. We look for much of the improvement to be fueled by continued strong momentum in Keytruda, which generated a staggering $7.2 billion in 2018 sales (+88% year over year). The drug has emerged as a clear favorite in the immuno-oncology space, recently surpassing its main rival Opdivo (made by Bristol- Myers Squibb) in terms of total sales, and has established a dominant position in the most lucrative segment of the market, lung cancer. Current projections suggest that annual sales of Keytruda could top $12 billion by 2024. All told, we have upped our 2019 adjusted earnings call to $4.65 a share (previously $4.60).

“As for the stock, we think it offers broad appeal. It stands out for the short term, offers an above-average dividend yield, and garners our top rank for Safety. Simply put, we view Merck as a core holding that would fit nicely in most equity portfolios.”

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