Merck & Co., Inc.

MRK Details

Merck & Co., Inc. (NYSE: MRK) is a worldwide healthcare company that produces drugs, vaccines, biologics, and animal health products. On a product basis, the firm is divided into two segments: 1) Pharmaceutical, which comprises the sale of human health pharmaceutical (HHP) goods and vaccines to physicians, wholesalers, and government entities; and 2) Animal Health, which develops, produces, and sells a wide range of veterinary medications, vaccinations, and health management services for all significant animal species.

Reducing the Risk of Hospitalization due to COVID-19: MRK and Ridgeback Biotherapeutics, a biotechnology firm focused on emerging infectious diseases, jointly announced on October 01, 2021, that the Phase 3 MOVe-OUT study showed that Molnupiravir (MK-4482, EIDD-2801), an experimental oral antiviral drug, decreased the risk of hospitalization or death in at-risk, non-hospitalized adults with mild-to-moderate COVID-19.

Acquisition of Acceleron: On September 30, 2021, MRK entered into an agreement to acquire Acceleron Pharma Inc., a biopharmaceutical company dedicated to discovering and commercializing therapeutics to treat severe and rare diseases, for USD 11.5 billion in an all-cash deal. The transaction is expected to close in Q4FY21.

H1FY21 Results: The company reported a 12.16% increase in sales to USD 22.03 billion during H1FY21 (ended June 30, 2021) compared to USD 19.64 billion during H1FY20, due to an increase in sales across both segments. However, its net income decreased to USD 4.72 billion during H1FY21 from USD 6.22 billion reported in H1FY20. As of June 30, 2021, the company had cash and cash equivalents of USD 8.58 million, with total debt of USD 26.52 billion.

Key Risks: Most of the company's income is generated from a few primary products: Keytruda, Gardasil/Gardasil 9, Januvia/Janumet, and Bridion. Any decrease in sales or pricing for these items might harm the company's operating results and cash flows. Furthermore, the healthcare business is highly regulated, politicized, and legally scrutinized. If its products fail to meet regulatory standards, its earlier approvals may be suspended or revoked.

Outlook: In its Q2FY21 release, MRK stated that it anticipates sales in FY21 to range from USD 46.4 to USD 47.4 billion, reflecting a rise of 12% to 14%. On a diluted basis, FY21 GAAP EPS is expected to range between USD 4.24 and USD 4.34 (with 2.53 billion issued and outstanding shares).

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

MRK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: MRK's stock price made a new 52 week high today. The stock is currently trading at an RSI level of 80.52, indicating an overbought zone. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 78.97. Considering the surge in the stock price and other technical indicators, we believe the decent business fundamentals are adequately reflected at the current trading levels. Hence, we recommend a "Sell" rating on the stock at the current price of USD 83.99, up 11.82% as of October 01, 2021, 9:34 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

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