Merck (MRK), one of the world’s largest healthcare corporations, focuses on innovative solutions for patients through prescription medicine, vaccines and biologic therapies.
Organon was the first company to be spun off. The operations of the company are now mainly divided into the Pharmaceutical and Animal Health sections. (See Insiders’ Hot Stocks on TipRanks)
Merck’s diverse portfolio of animal and human health drugs provides a steady stream of cash flow. Merck’s stock trades at a attractive valuation and is very profitable. This is why I believe the stock should be bought.
Merck has a portfolio of brands that include pharmaceuticals, which provides it with some of the best cash flows and stability in the sector.
Merck’s most recent quarterly results reflect the strength of its portfolio. In Q2, revenues grew 22% to $11.4 billion, beating analysts’ estimates by $200 million. Adjusted net income reached $3.3Billion, which is $1.31 per diluted share. This compares to the $2.5 Billion, or $1.02 per diluted share for the same period last year.
While COVID-19 was a significant negative for Merck, recent Merck results show that it had had positive consequences. According to the company, the Q2 net positive benefit from the pandemic’s return to year-overyear sales growth was $900 million.
Particularly, drug revenues increased 18%, to $10 billion. However, this was with a currency exchange drag of 4%. Keytruda which is used to treat cancers, such as non-small cells lung cancer and melanoma. It reported a 20% increase in sales from $4.1 billion.
Keytruda continues to experience strong sales growth across many indications.
Further, Merck’s HPV vaccine Gardasil’s revenues surged 78% to $1.2 billion, powered by the ongoing recovery in the U.S. and China.
The strong Q2 results led to Merck providing updated guidance for next year. Merck now estimates revenue of $46.4 billion-$47.4 billion in the full year, compared to $45.8 billion-$47.8 million previously. This indicates an increase of 12%-14% year-over year. The adjusted EPS forecasted ranges between $5.47 and $5.57.
The stock trades at the $5.52 midpoint in this estimate of EPS. It currently has a 14.4 (sort of forward-looking) P/E attached. This is an extremely affordable multiple given the current market.
Additionally, the stock yields around 3.2%. That’s a good yield considering the current market conditions.
Merck raised its DPS by 6.6% in their latest hike. It is very likely that there will be more hikes, with the next scheduled for November.
Wall Street’s Take
Merck is rated Moderate Buy by Wall Street based on 6 Buys, 4 Holds and 0 Sells over the past 3 months. At $93.30, the average Merck price target implies 17.2% upside potential.
Disclosure: Nikolaos Sismanis didn’t hold any position at the time this article was published.
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