Merk & Co Inc. has reliable fundamental parameters and technical patterns to be added to your portfolio.
- Merck makes pharmaceutical products to treat conditions in a number of therapeutic areas, including cardiovascular disease, asthma, infections, and osteoporosis. The company also has a substantial vaccine business, with treatments to prevent hepatitis B and pediatric diseases as well as HPV and shingles. Following the Schering acquisition, about 45% of the company's sales are generated in the United States
- Merck remains in strong financial health, even with the additional $8.5 billion in debt needed for the Schering acquisition. We expect the combined company will generate a free cash flow of approximately $12 billion in 2011.
- Merck's new products during the last few years have helped to offset recent patent losses, Januvia for diabetes and Isentress for HIV.
- Merck's efforts to develop a reliable late-stage pipeline have yielded questionable results. The Food and Drug Administration denied Merck approval for cholesterol drug Tredaptive (formerly Cordaptive) in early 2008.
- Deciding not to wait for new internal pipeline drugs, Merck significantly strengthened its operations by acquiring Schering-Plough for about $40 billion. Schering brings in a very strong pipeline of late-stage drugs with blockbuster potential and faces only limited patent losses during the next few years.
Current Valuation
MRK
| MRK | Industry Avg | S&P 500 | MRK 5Y Avg* |
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*Price/Cash Flow uses 3-year average.
Risk
- Merck's near-term risk largely centers on market acceptance of new products. Like all pharmaceutical companies, Merck faces regulatory risk from the FDA. Product delays or nonapprovals could hurt the stock. Also, the growing power of managed care and a more price-sensitive U.S. government may reduce Merck's pricing power.
Bulls say
- New product launches of Isentress and Januvia leaped to a strong start, and delays of competing drugs have given Merck a leg up in maintaining market leadership
- Restructuring efforts should reduce costs and improve margins over the long term, helping to offset the patent expirations of high-margin products.
- The acquisition of Schering enables Merck to potentially achieve $3.5 billion in annual cost-saving synergies by 2011.
Bears say
- Merck faces the loss of its largest sales contributo when the 2012 patent on Singulair expires.
- Poor trial results from a key Schering pipeline product called TRA casts a cloud of increased uncertainty over the other pipeline products acquired in the Schering acquisition.
- Poor results from the Enhance study combined with increased generic statin competition could reduce the market potential for Vytorin and Zetia.
Technical overview
- The current price action has a lateral track with slightly down side bias. I still can't say this share has a BUY signal. I need to see overcoming the $37.65 resistance first and closing above the upper channel line.
Good luck trading!
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| Price/Earnings | 37.0 | 16.2 | 12.5 | 40.7 |
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| Price/Book | 1.9 | 2.3 | 1.8 | 3.9 |
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| Price/Sales | 2.3 | 2.5 | 1.1 | 3.5 |
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| Price/Cash Flow | 10.0 | 9.2 | 8.1 | 14.9 |
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| Dividend Yield % | 4.4 | 3.8 | 2.5 | 3.9 |
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| Price/Fair Value | 0.7 | — | — | — |
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