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Barclays On Merck: Too Much Underlying Value To Ignore

Courtesy of Benzinga.

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  • Merck & Co., Inc. (NYSE: MRK) shares are down 13 percent in the last six months, having plunged in August and September and declining steadily in November.
  • Barclays’ Geoff Meacham assumed coverage of the company with an Overweight rating and a price target of $66.
  • Following the underperformance of Merck’s shares, the stock seems to be discounting all the risks and headwinds, Meacham stated.

Merck’s shares have underperformed the DRG and S&P 500 over the past year. The pressure on shares has been on concerns surrounding Remicade in the EU, the Keytruda immuno-oncology strategy, and the potential impact to the Januvia franchise from SGLT-2s.

Analyst Geoff Meacham said that although there have been several headwinds and risks “that make Merck a "show me" story,” there appears to be “too much underlying value to ignore,” even under the most potential negative scenarios.

While Remicade could erode further and there may be a slowdown in Januvia, these are already reflected in Merck’s shares, Meacham mentioned. He added that Remicade could decline 15 percent ex-FX in 2016, in a conservative model. The decline would be due to “fewer new patient starts, competition from biosimilars, and new oral therapies.”

In the report Barclays noted, “Rapid anticipated SGLT-2 class growth is likely to impact Januvia modestly going forward, but combination use should moderate potential declines, though we also see movement toward fixed dose SGLT-2/DPP-4 combinations as the preferred choice over separate multiple pills.” Merck and Pfizer Inc. (NYSE: PFE) are also co-developing ertugliflozin, which is currently in Phase 3.

“Even if pipeline assets aren't blockbusters, they add up and are nearly free at the current valuation,” Meacham wrote.

Latest Ratings for MRK

Date Firm Action From To
Dec 2015 Barclays Upgrades Equal-weight Overweight
Nov 2015 Berenberg Initiates Coverage on Buy
Sep 2015 JP Morgan Maintains Overweight

View More Analyst Ratings for MRK
View the Latest Analyst Ratings

Posted-In: Barclays Geoff MeachamAnalyst Color Long Ideas Initiation Analyst Ratings Trading Ideas


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