Merck & Co., Inc. (MRK) provides health solutions through prescription medications, vaccines, biological treatments, and consumer care products. The company operates in two segments: pharmaceutical and animal health. The stock has gained 17% over the past year and 23.8% over the past nine months to close its last trading session at $92.00.

Currently, the company is in talks to acquire cancer-focused biotech firm Seagen Inc. (SGEN), which has a market capitalization of $30.46 billion, to enhance its cancer-drug portfolio. This would be one of the largest takeovers of the year.

Also, before considering the Seagen deal, Merck completed the acquisition of Acceleron Pharma Inc. (XLRN) last November for $11.5 billion.

MRK reported $15.9 billion in sales for the first quarter of 2022, beating the consensus estimate of $14.6 billion. The company posted an adjusted EPS of $2.14, beating Wall Street's estimate by 17.1%.

MRK’s chief executive officer and president, Robert M. Davis, said, "Robust first-quarter performance was driven by significant clinical advancements in our research pipeline and effective commercial execution across a broad set of key growth drivers.”

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

Latest Developments

Recently, MRK announced today that the U.S. Centers for Disease Control and Prevention’s (CDC’s) Advisory Committee on Immunization Practices (ACIP) unanimously voted to include VAXNEUVANCETM (Pneumococcal 15-valent Conjugate Vaccine) as a recommended option for vaccination in infants and children, including routine use in children under two years of age.

Recently, MRK announced that the Phase 3 PROpel trial results have been published in NEJM Evidence. Results from the trial showed that LYNPARZA in combination with abiraterone plus prednisone significantly improved radiographic progression-free survival (rPFS) versus abiraterone plus prednisone, a standard of care, as first-line treatment for patients with metastatic castration-resistant prostate cancer (mCRPC) with or without homologous recombination repair (HRR) gene mutations.

Robust Financials

MRK's sales increased 50% year-over-year to $15.90 billion during the first quarter of fiscal 2022. Its non-GAAP net income grew 84% from its year-ago value to $5.43 billion, while its non-GAAP EPS improved 84% from its prior-year quarter to $2.14. The company’s net cash provided by operating activities of continuing operations grew 284% year-over-year to $4.76 billion.

Strong Profitability

MRK’s 71.12% trailing-12-month gross profit margin is 29.2% higher than the 55.04% industry average. In addition, its trailing-12-month EBITDA margin of 40.52% is 927.54% higher than the 3.94% industry average. Also, its 0.55% trailing-12-month asset turnover ratio is 55.2% higher than its industry average of 0.35%.

Impressive Growth Prospects

The Street expects MRK’s revenues to rise 21.8% in the current quarter and 18.8% in the current year. The EPS is expected to rise 29.8% In the current quarter, 21.9% in the current year, and 0.5% next year.

In addition, MRK EPS is expected to rise at an 11.6% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in three of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Upside

Out of the 10 Wall Street analysts that rated MRK, seven rated it Buy, and three rated it hold. The 12-month median price target of $98.20 indicates a 6.7% potential upside. The price targets range from a low of $87.00 to a high of $107.00.

POWR Ratings Reflect Solid Prospects

MRK has an overall A grade, which equates to Strong Buy in our proprietary 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 an A grade for Growth and a B for Stability and Quality. MRK’s strong financials and impressive growth attributes are consistent with the Growth grade. 

Its stock beta of 0.37 is in sync with the Stability grade. In addition, its higher profitability justifies the Quality grade.

Among the 169 stocks in the F-rated Medical – Pharmaceuticals industry, MRK is ranked #1.

Beyond what I stated above, we have graded MRK for Sentiment, Value, and Momentum. Get all MRK ratings here.

Bottom Line

MRK has gained 21.5% over the past six months. The company has surpassed the analysts’ sales and EPS projections in its recent quarterly release, raising investors’ optimism about its prospects. Moreover, various clinical advancements have helped the company exhibit strong first-quarter sales.

Given the stock’s higher profitability and lower valuations, we think it could be an opportune time for investors to scoop up its shares.

How does Merck & Co., Inc. (MRK) Stack Up Against its Peers?

MRK has an overall POWR Rating of A, which equates to a Strong Buy. Check out these other stocks within the Medical – Pharmaceuticals industry with A (Strong Buy) ratings: Novartis AG (NVS), Novo Nordisk A/S (NVO), and Pfizer Inc. (PFE).

MRK shares were trading at $93.41 per share on Friday afternoon, up $1.41 (+1.53%). Year-to-date, MRK has gained 23.97%, versus a -17.77% rise in the benchmark S&P 500 index during the same period.

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.

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