Summary
- The stock represents good value with an estimated upside of 15.15% with a target price of $102.44, backed by strong fundamentals.
- Merck & Co is expected to experience a double digit EPS growth, primarily driven by Keytruda, with sales to project at a CAGR of ~20% the next 5 years.
- Gardasil (HPV) will be the main growth driver for the Vaccine Portfolio, with sales to project at a CAGR of ~7% the next 5 years.
- Merck is committed to HIV research, as Anti-HIV Agent MK 8591 recently entered Phase 3 trials.
- Recent acquisition of ArQule looks favorable as Merck continues to expand its oncology pipeline.
Investment Thesis
We recommend a BUY rating for Merck & Co. (MRK). The stock represents good value with an estimated upside of 15.15% with a target price of $102.44. The upside potential is driven by 1) Double digit EPS growth driven by Keytruda, primarily from first-line indications, 2) Gardasil (HPV) as the growth driver for the Vaccine Portfolio and 3) Commitment to HIV research, as Anti-HIV Agent MK 8591 recently entered Phase 3 trials. The risk to our recommendation and target price include setbacks from Keytruda franchise, loss of exclusivity on patent rights and new drug pricing rules. Through 2027, Merck & Co. is expected to experience growth from 6%-11% and double digit EPS growth of about 10%. Margin upside opportunities exist through operating margin upside with a high capital deployment optionality. With a flawless balance sheet, Merck & Co. continues to grow at above-market rates with a positive outlook and undervalued shares.
Analyst Research
Based on analysts offering 12 month price targets for Merck & Co. as of October 29-30, 2019. Based off of 10 analysts, the average price target is $98.40 with a high estimate of $105 and a low estimate of $90.
Source: Image created by author with data from Bloomberg Intelligence
Merck & Company Sales by Segment 2018A-2025E (in MM)
Source: Image created by author with data from JP Morgan and Merck & Co.
Merck & Co Composite Peer Group And S&P 500 Index
Source: Image created by author with data from Company 10K
The performance graph showcases an assumption of a $100 investment into Merck & Co, Inc., S&P 500 Index and the following peer group companies: AbbVie Inc. (ABBV), Amgen Inc. (AMGN), AstraZeneca Plc (OTCMKTS: AZNCF), Bristol-Myers Squibb Company (BMY), Johnson&Johnson (JNJ), Eli Lilly and Company (LLY), GlaxoSmithKline Plc. (GSK), Novartis AG (NVS), Pfizer Inc (PFE), Roche Holding AG (OTCMKTS:OTCQX:RHHBY) and Sanofi SA (SNY).
