Merck & Company (MRK) is not on the minds of many investors right now. The stock didn’t have any major movements in the last year. The market is concerned because of the company’s overreliance on the drug Keytruda and the fact that its free cash flows were on the lower side.
However, this means the stock is attractively valued at the moment. Merck is a stock that fits into the portfolio of almost every kind of investor and also comes with a dividend yield of 3.3%. Taking into account its continued undervaluation, we are optimistic about the company’s future considering its robust balance sheet and the fact that Keytruda can potentially become one of the best-selling drugs by 2026. We are bullish on the stock.
Merck & Co is a U.S.-based pharmaceutical company with global operations. The healthcare giant has been actively engaged in developing and producing different kinds of innovative health solutions such as prescription medicines, animal health products, biologic therapies, and vaccines. Back in 2020, it had announced the spin-off of its women’s health and biosimilars businesses into another publicly-traded company called Organon (OGN).
Merck has a steady business across the healthcare space. Globally, there is a lot of geopolitical unrest, inflation levels are rising, and financial markets are under heavy pressure. In such times, investing in stable healthcare stocks like Merck can be a smart decision. This is because the coronavirus pandemic is still very alive around the globe, and global healthcare systems have realized that they will have to deal with it for quite some time.
Governments around the world are still putting a lot of money into the healthcare industry. For example, recently, the Senate Republicans and Democrats decided on additional pandemic funding of a whopping $10 billion, which would be used to buy therapeutics and vaccines and maintain testing capacities. Such moves would bring in more support towards biotech stocks like Merck that also work for the cause of fighting the coronavirus
Good Financials
Merck’s latest financials, which were released in early February, appear to be quite strong. The company’s revenues from continuing operations had grown 24% year-over-year to $13.5 billion during the said period. Net income excluding acquisition and divestiture-related costs, restructuring costs, and income/losses from equity investments was recorded at $4.57 billion, thereby translating to a per-share value of $1.80.
When compared to last year’s net income of $2.49 billion, or $0.98 per share, the improvement this year appears to be substantial. Annual revenue growth of 17% was fueled by the 17% increase in pharmaceutical revenues, with Keytruda posting sales growth of 20% to $17.2 billion.
It is believed that Keytruda’s revenues will keep increasing as the company keeps on capturing a greater chunk of the underlying market share. Also, its HPV vaccine’s revenue has also shown a 44% increase to $5.7 billion, benefiting from the strong growth in international demand.
Merck estimates that total revenues for Fiscal 2022 will be between $56.1 billion and $57.6 billion, thus translating to year-over-year growth between 18% and 21%. Further, EPS is expected to land within the range of $7.12 to $7.27, implying a 19.5% year-over-year increase from Fiscal Year 2021.
Wall Street’s Take
Turning to Wall Street, Merck sports a Moderate Buy consensus rating based on eight Buys, three Holds, and no Sell ratings assigned in the past three months. At $92.91, the average Merck price forecast implies 9.8% upside potential.
Chris Schott, a Wall Street Analyst from JPMorgan (JPM), has a positive opinion regarding Merck Stock and gave it a Buy rating a few months back. However, he had lowered the price target on the stock to $95 from $100 and had kept an overweight rating on the company’s shares.
He also stated that he does not expect any surprises regarding MRK’s 2022 guidance because of the positive momentum he sees in the company’s core business and the short-term upside potential of its Molnupiravir sales.
Positive Developments
There are many developments at Merck. Its drugs like Keytruda, Lynparza, and Lenvima are expected to dominate the markets in the coming years. Further, it is also working on two HIV-targeting therapies and more vaccinations for several infectious diseases, infectious disease therapies, neuroscience opportunities, and many more.
Its pulmonary arterial hypertension therapy, Sotatercept, which it had got from its $11 billion acquisition of Acceleron last year, also holds immense potential and can generate a good amount of sales if it gets approved.
The development and launch of Molnupiravir by the company was another successful move. The investigational oral antiviral medicine, which is used for the treatment of mild to moderate COVID-19, was previously given emergency approval by the FDA, and its patent will last until 2038.
However, there is a little concern, too, because pharmaceutical giants like Moderna (MRNA), BioNTech (BNTX), and Pfizer (PFE) are involved with COVID-19 vaccines, thus making this space extremely competitive.
Conclusion
Merck is a good-quality stock, and its outlook for this year appears to be quite promising. The company has been in existence for over 130 years and has come up with several lifesaving drugs since then. The stock is potentially ideal for investors who don’t have much of a risk appetite and prefer stocks that can regularly provide them with good dividend income and decent capital appreciation.
Notably, after halting its dividend appreciation between 2005 to 2012, the company has consistently increased its dividend every year since then.
Discover new investment ideas with data you can trust.
Read full Disclaimer & Disclosure
