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Merck Executing at a High Level,
Share-Net Targets Raised

The Value Line Investment Survey, recently called attention to Merck & Co. (MRK). The New Jersey-headquartered pharmaceuticals behemoth employs more than 70,000 individuals, has a market capitalization of over $200 billion, and has been a component of the Dow Jones Industrial Average since 1979.

Merck & Co. is executing at a high level, says Richard Gallagher, Associate Director, Value Line Research. “The drugmaker has exceeded consensus earnings/sales expectations in each of the last three reported quarters. While COVID-related disruptions have weighed on certain areas of the business, the impact has been largely offset by continued cost-cutting initiatives and strong momentum in the blockbuster Keytruda franchise. What’s more, September-period profits were bolstered by higher income from investment gains on equity securities. In particular, Merck owns a sizable stake in Moderna, and that company’s stock price surged in value over the back half of 2020 thanks to optimism surrounding its COVID-19 vaccine.

We have raised our 2020 and 2021 share-net targets for Merck to $6.00 and $6.50, respectively, from $5.70 and $6.30. The revisions reflect the company’s better-than-expected third-quarter results, improved sales projections for several key drugs, and reduced operating costs. In terms of the portfolio, Keytruda, its cancer drug, remains the top dog (30% of the top line) and should remain a key catalyst over these next several quarters and beyond. Merck’s development of this prized asset has been highly impressive, with Keytruda racking up nearly 30 FDA approvals since 2014. The franchise generated $10.4 billion in sales during the first nine months of 2020 (+30% year over year).

Top-quality Merck shares have broad appeal. In addition to attractive gains potential over the 18-month and 2023-2025 time frames, the stock provides an above-average dividend yield and prospects for regular growth in the payout. The company’s stellar finances ought to especially appeal to conservative investors. All told, we view Merck stock as a core holding that would fit nicely in most equity portfolios.”

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