Shares of established health care company Merck & Co., Inc. (MRK), which is headquartered in Kenilworth, N.J., have lost 8.4% over the past month to close yesterday’s trading session at $72.04, due mainly to investor pessimism around the company not being a frontrunner in the COVID-19 vaccine race. Hedge funds’ interest in the name has  remained unchanged from the last quarter. However, the stock has gained 3% in price since its 52-week low of $68.44, which it hit on March 4, 2021.

Furthermore, MRK announced recently  that its experimental COVID-19 antiviral treatment, molnupiravir, could get U.S. emergency use authorization before the year-end. The company also said that the COVID-19 pandemic would have a negligible impact on its operating expenses. 

MRK expects sales growth to be between 12% to 14% in its fiscal year 2021. The company’s revenue is estimated to be between $46.40 billion and $47.40 billion, and its non-GAAP EPS is expected to be between $5.47 and $5.57 in the current year. So, the stock’s near-term prospects look promising.

Here’s what could influence MRK’s performance in the near term:

Broad Portfolio of Products

On Sept. 19, MRK announced positive results from a pivotal Phase 3 KEYNOTE-355 trial of KEYTRUDA.KEYTRUDA is the first anti-PD-1 therapy combined with chemotherapy to demonstrate a statistically significant and clinically meaningful improvement in overall survival (OS) for patients with metastatic triple-negative breast cancer (mTNBC). Earlier this month, the product was approved in China and Japan.

Last month, MRK announced favorable top-line results from a pivotal PNEU-PED study evaluating the immunogenicity, safety, and tolerability of VAXNEUVANCE (Pneumococcal 15-valent Conjugate Vaccine) in healthy infants enrolled between 42 - 90 days of age. Also, the Food and Drug Administration (FDA) approved WELIREG on August 13 to treat adult patients with von Hippel-Lindau (VHL) disease.

Revenue Growth Across All Major Segments

For the second quarter, ended June 30, 2021, MRK’s revenue from its pharmaceutical segment came in at $9.98 billion, up 22% year-over-year, while its revenue from its  animal health segment increased 33.7% year-over-year to $1.47 billion. In addition, its KEYTRUDA revenue increased 23.3% year-over-year to $4.18 billion. While its non-GAAP net income increased 28% year-over-year to $3.32 billion, its non-GAAP EPS came in at $1.31, representing a 28% year-over-year rise.

Favorable Analysts Estimates

Analysts expect MRK’s revenue to increase 8% year-over-year to $50.58 billion in its fiscal year 2022. Also, the company’s EPS is expected to increase 22.1% this year and 16.5% next year. In addition, its EPS is expected to grow at a 12.6% rate per annum over the next five years. Wall Street analysts expect the stock to hit $90.14 in the near term, which indicates a potential 25.1% upside.

POWR Ratings Show Promise

MRK has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. MRK has a B grade for Stability, consistent with its 0.42 beta.

The stock has a B grade for Quality, which is in sync with its 72.31% trailing-12-month gross profit margin, which is 31.4% higher than the 55.01% industry average. 

Furthermore,  MRK has a B grade for Value. This is consistent with its forward non-GAAP P/E and EV/S of 12.98x and 4.27x, respectively, which are lower than the 22.51x and 6.75x  industry averages.

MRK is ranked #18 of 214 stocks in the Medical – Pharmaceuticals industry. Click here to see MRK’s ratings for Growth, Momentum, and Sentiment.

Click here to checkout our Healthcare Sector Report for 2021

Bottom Line

MRK had 53 programs in phase two, 24 programs in phase three, and three under review as of July 27, 2021. In addition, it has been making several advances in the COVID-19 front with the help of molnupiravir and other areas, such as oncology, immunology, neuroscience, and cardiovascular. So, based on its favorable growth prospects, we think it could be wise to bet on the stock now.

How Does Merck & Co (MRK) Stack Up Against its Peers?

MRK has an overall POWR Rating of B, which equates to a Buy rating. In addition, one could also check out these A (Strong Buy) rated stocks within the Medical – Pharmaceuticals industry: Johnson & Johnson (JNJ), Novartis AG (NVS), and Abbott Laboratories (ABT).

MRK shares rose $0.46 (+0.64%) in premarket trading Thursday. Year-to-date, MRK has declined -9.59%, versus a 18.26% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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