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Time To Book Profits on This NYSE-Listed Pharmaceuticals Major – MRK

Apr 08, 2022 | Team Kalkine
Time To Book Profits on This NYSE-Listed Pharmaceuticals Major – MRK


Merck & Co., Inc.

Merck & Co., Inc. (NYSE: MRK) is a medicine, vaccine, biologics, and animal health company. It creates drugs to treat various illnesses, including cardiometabolic disease, cancer, and infections. The company also sells vaccines for hepatitis B, pediatric disorders, HPV, and shingles, among other conditions.

Why should Investors Book Profits?

  • Leveraged Balance Sheet: The company's debt/equity ratio was 0.87x as of December 31, 2021, compared to the industry median of 0.37x. Furthermore, its long-term debt-to-total-capital ratio was 43.0% during the same time, compared to 22.2% for the industry norm. As a result, the company's balance-sheet risk has grown.
  • Quarterly decline in Margins: The company's Gross and Net margins decreased sequentially in Q4FY21 to 71.7% and 28.3%, respectively, from 74.1% and 34.7% in Q3FY21.
  • Product Concentration Risk: The company's main products include Keytruda, Gardasil/Gardasil 9, Januvia/Janumet, and Bridion, which provide most of its revenue. Any decrease in product sales or pricing could have a negative impact on the company's operating and financial results.
  • Bearish Technical Indicators: MRK's stock price reached a crucial resistance level of USD 87.11 but was unable to break this level, indicating the possibility of a downside correction which may lead the prices towards the resistance turned support level of USD 81.00. On the daily chart, RSI (14-period) is reached an overbought zone at 83.01 levels, indicating an overbought zone. However, prices are still sustaining above the trend-following indicators 21-period SMA and 50-period SMA and may act as the support levels for the stock.

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 FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

MRK's share price has remained trending throughout the year; moreover, it gained 12.84% in the past month. It is currently leaning towards the higher band of its 52-week range of USD 69.46 to USD 91.40. We have valued the stock using the Price/Earnings multiple-based relative valuation methodology and arrived at a target price of USD 75.00.

Considering the company's sequential decline in margins, highly leveraged balance sheet, current valuation, associated risks, and bearish technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 86.80, up 2.15% as of April 07 2022.

Three-Year Technical Price Chart (as of April 07, 2022). Analysis by Kalkine Group 

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

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