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Merck: Getting Stronger

May 04, 2018 12:36 PM ETMerck & Co., Inc. (MRK)9 Comments


  • Merck has returned to growth driven by continued growth of Keytruda and currency tailwinds.
  • While accelerating growth is very nice to see, GAAP earnings took another beating following another multi-billion R&D charge.
  • A return to growth, very strong balance sheet, and reasonable earnings multiple make me continue to be upbeat on Merck and add to my position.

Merck's (NYSE:MRK) fortunes continue to be dominated by the rise of miracle drug Keytruda. Back in February, I concluded that the drug was doing just fine in this article, Merck: Keytruda Remains Key.

The good news for investors is that Keytruda seems to be outcompeting its competitor drug from Bristol-Myers (BMY), which is reassuring as continued success of Keytruda is needed to offset sales declines at the rest of the business. These declines have weighed a bit on the shares, and I have gradually been scooping up some at average levels just below $55 per share amidst a very reasonable valuation and real prospects for growth in 2018.

Keytruda - A Real Blockbuster To Come

Merck has a great history of developing drugs which have benefited societies over the past decades, in fact over much longer time frames as well. Good things come in waves and that appears to be the case for Merck as well. After a long period of stagnation (in recent decades), Merck appears to have a real blockbuster at hand again.

Shares traded at just $2 in the '80s, a level now equal to the annual dividend payout, as they jumped to $80 during the dotcom crisis, followed by a painful decade for Big Pharma. Shares lost about 75% of their value between 2000 and the financial crisis. The emergence of Keytruda and the deal with Schering-Plough in 2011 have however allowed for a return of fortunes as shares have risen to levels around $55 by now.

Keytruda - Let's Tackle Cancer

Keytruda is one of the most prominent drugs in the treatment of cancer as we of course all know the prevalence and impact of this disease. While there are many indications of cancer, the good news is that Keytruda seems to have a real effect in

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This article was written by

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Finding value that gets unlocked in M&A, IPOs and other corporate events
The writer is a long term value investor and M.Sc graduate in Financial Markets with over 10 years experience. Value can be found in both long and short ideas and uses options to enhance the risk-return profile of investment ideas. Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice.

Analyst’s Disclosure: I am/we are long MRK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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