Merck & Co., Inc.

MRK Details

Merck & Co., Inc. (NYSE: MRK) is a global healthcare company, which is involved in offering health solutions through its prescription medicines, biologic therapies, vaccines, and animal health products. The company operates via two segments, 1) Pharmaceutical, which offers human health pharmaceutical products for oncology, acute hospital care, immunology, neuroscience, virology, cardiovascular, diabetes, women's health, and vaccine products; and 2) Animal Health, focused on discovery, development, manufacturing, and marketing of veterinary pharmaceuticals, vaccines, and health management services.

Receipt of FDA Approvals: On August 13, 2021, MRK announced the receipt of the US Food and Drug Administration (FDA) approval for its oral hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor, WELIREG, for the treatment of von Hippel-Lindau (VHL) disease in adults requiring therapy for associated renal cell carcinoma (RCC), central nervous system (CNS) hemangioblastomas, or pancreatic neuroendocrine tumors (pNET).

Previously, on August 11, 2021, the FDA also approved the combination of KEYTRUDA, MRK's anti-PD-1 therapy, plus LENVIMA, an Eisai discovered orally available multiple receptor tyrosine kinase inhibitor, for the first-line treatment of adult patients with advanced renal cell carcinoma (RCC).

Q2FY21 Results: The company reported a sharp uptick of 22% in revenues to USD 11.40 billion in Q2FY21 (ended June 30, 2021) compared to USD 9.35 billion in Q2FY20, driven by the continued recovery from the COVID-19 pandemic and strong demand for KEYTRUDA, GARDASIL/GARDASIL 9 (preventive vaccines for cancer and certain human papillomavirus (HPV)), and the animal health products. Net income for Q2FY21 was USD 1.55 billion, lower than USD 3.00 billion in Q2FY20, owing to greater R&D expenses. MRK exited the quarter with a cash balance of USD 8.58 billion and a total debt of USD 26.52 billion.

Key Risks: MRK relies on the sales of its essential products (KEYTRUDA, GARDASIL/GARDASIL 9, JANUVIA/JANUMET, and BRIDION). Any decline in the sales or pricing of these products could adversely impact the company's results of operations and cash flows. Further, the health care industry is subject to strict regulatory, political, and legal scrutiny. The prior approvals of its products may be suspended/withdrawn if they fail to comply with the regulatory requirements.

Outlook: As of Q2FY21, MRK expects its revenue to range from USD 46.4 billion to USD 47.4 billion in FY21, representing a growth of 12% to 14%. FY21 GAAP EPS is estimated to be between USD 4.24 and USD 4.34 (estimated ~2.53 billion shares outstanding on a diluted basis).

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 surged 4.41% in the past three months and is currently close to the higher-band of the 52-week range of USD 68.38 to USD 83.72. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 62.43. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 87.50. Considering the correction in the stock price, decent financial performance, strong product pipeline, and current valuation, we recommend a "Hold" rating on the stock at the current price of USD 78.82, up 0.46% as of August 20, 2021, 1:34 PM ET.

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

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