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.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.