October 27, 2023, $102.82
Business Overview:
Merck is a key provider of prescription medicines, vaccines, biological therapies, animal health, and consumer care products. Founded in 1891. Headquartered in Kenilworth, New Jersey
- Operational Segments: The company operates through three segments: Pharmaceutical, Animal Health, and Other.
- Pharmaceutical Segment: Involves human health pharmaceutical and vaccine products.
- Animal Health Segment: Focuses on the discovery, development, manufacturing, and marketing of animal health products for various species.
- Other Segment: Sales for non-reportable healthcare services.
Maverick Guidance:
- Short-term technical buy/sell recommendation: AVOID UNTIL JANUARY. P&F HAD DOUBLE-BOTTOM BREAKDOWN ON 02AUG23
- Long-term portfolio recommendation: MONTHLY TREND AND CYCLE INDICATORS ARE BEARISH, SO CAUTIOUS BUYS ON EXTREME MARKET WEAKNESS ONLY BECAUSE INVESTOR SENTIMENT IS STARTING TO TURN POSITIVE
- NOTEWORTHY: Earnings have missed the past nine quarters:
- 3Q2023 (Oct 26) reported EPS of $2.13 ($1.86 GAAP) vs forecast of 1.95 and $1.85 for the same quarter the prior year
- 4Q2023 (to be reported 31Jan24) is forecasted at $0.98 vs. $1.62 for the same quarter the prior year
- Earnings pullbacks are due to reduced sales of COVID-19 products, which is probably over, and e2024 earnings should be robust.
Consideration for Maverick Portfolio:
- Appropriate for risk profile score of 16-21. The Moderately Conservative Investor aims for a balanced approach that combines growth and stability. The Maverick CAUTIOUS GROWTH portfolio is designed to achieve modest medium-term total returns.
- Appropriate for risk profile score of 22-29. The Moderate Investor seeks to balance caution and ambition, aiming for reasonable growth while managing risk. The Maverick MODERATE GROWTH portfolio is designed to maintain a stable yet potentially rewarding financial strategy by including a mix of conservative and moderately aggressive Dow 30 stocks.
- Appropriate for risk profile score of 30-35. The Moderately Aggressive Investor is willing to take on higher risk for the potential of higher returns. The Maverick DYNAMIC GROWTH portfolio includes a higher allocation of high-growth-oriented Dow 30 stocks to align with this risk-tolerant approach.
Internal Strategic Factors
Strengths:
- Exceptional customer experience strategy with personalization and innovation.
- Sustainable margins and high customer retention.
- Strong talent recruitment and focus on digital transformation.
Weaknesses:
- High operating costs and overdependence on dominant products.
- Vulnerability to powerful channel partners and slow adaptation to change.
- Slow decision-making and limited market penetration in new regions. Top of Form
External Strategic Factors
Opportunities:
- Leverage digital tech, government spending, and 5G expansion.
- Reconfigure the business model and use analytics for an advantage.
- Collaborate with new partners, adopt manufacturing automation, and capitalize on changing consumer behavior.
Threats:
- Declining consumer confidence and shorter product life cycles.
- European instability and trade wars.
- An aging population and economic stagnation with rising wages.
- Regulatory challenges and cybersecurity threats.
Market Guidance:
- Consensus Analyst Ratings— MarketBeat = MODERATE BUY, TipRanks = STRONG BUY
- 16 Wall Street analysts have offered 12-month price targets in the last 3 months. There are 13 Buy, 3 Hold, and zero Sell. (from TipRanks)
- Based on 16 Wall Street analysts offering 12-month price targets in the last 3 months, the average price target is $125.38, with a high forecast of $135.00 and a low forecast of $113.00. The average price target represents a +21.9% change from $102.82. (from TipRanks)
- Dividend Yield: $0.73 per share paid quarterly to yield 2.77%.
- Dividend growth for 15 years. (from TipRanks)
- Technical Sentiment (based on Technical Indicators and Moving Averages):
- com = Daily (SELL) and Weekly (STRONG SELL)
- TipRanks = Daily (BUY) and Weekly (BUY) * note the differing calculations.
Value Line Guidance:
- Company Financial Strength Rating: A++
- Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
- Share Price Safety: 1 of 5
- Market Timing: 3 of 5
- Technical Rank: 1 of 5
- Beta: 0.75
- Stock’s Price Stability: 100/100
- Price Growth Persistence: 60/100
- Earnings Predictability: 95/100
- Average Annual PE: 14
- Average Annual Sales Growth in the past 5 years: +7.0%
- Average Annual Sales Growth for the next 5 years: +5.0%
- Average Annual Cash Flow Growth in the past 5 years: +6.0%
- Average Annual Cash Flow Growth for the next 5 years: +7.5%
- Average Annual Earnings Growth in the past 5 years: +11.5%
- Average Annual Earnings Growth for the next 5 years: +8.5%
- Average Annual Dividend Growth in the past 5 years: +5.0%
- Average Annual Dividend Growth next 5 years: +7.0%
- Average Annual Dividend Yield 3 to 5 years: +8.0%
Financial Performance
- 10-year Average Annual Total Return: +12.72% (through Oct 26, 2023) (Dow 30 2nd quartile).
- EPS 2022: $7.482023: e$4.78 2024: e$8.06 (from Value Line and MarketBeat)
- Average Annual PE: 14 (VL Quarterly Report)
- PEG Ratio: 2.83 (FinViz)
- Beta: 0.75 (ValueLine)
Quarterly Reports Summaries (including Revenue, Cash Flow, Earnings):
3Q2023 Quarterly September:
- Q3 2023 revenue: $15.96 billion, a 6.7% increase year-over-year.
- EPS: $2.13, up from $1.85 in the same period last year.
- The full-year revenue outlook was raised to $59.7 billion to $60.2 billion.
- Next quarter EPS guidance lowered to $1.33 to $1.38 due to a $5.5 billion charge related to collaboration with Daiichi Sankyo.
- Revenue exceeded consensus estimates by 3.80%.
- Significant EPS surprise of 9.79%.
- Keytruda sales in the U.S. showed a year-over-year increase of 13.9%.
- RotaTeq sales decreased by 39.1% compared to the same quarter last year.
- Other segments, such as Animal Health and Pneumovax, saw moderate YoY revenue changes.
2Q2023 Quarter June:
- Merck is expected to experience a pullback in profitability due to slowing top-line growth.
- Decline in COVID-19-related sales, particularly Lagevrio.
- A one-time charge of $10.2 billion tied to Prometheus Biosciences acquisition.
- Projected earnings fall by 60% in 2023.
- The expectation is to regain traction in 2024, especially with Keytruda’s strong performance.
- Possible continued M&A activity.
1Q2023 Quarter March:
- Merck started FY2023 on a positive note with better-than-expected first-quarter results.
- Strong growth in Keytruda and Gardasil franchises offset declining Lagevrio sales.
- Raised 2023 adjusted earnings estimate to $7.00 a share.
- Leadership increased full-year forecasts.
- Keytruda and Gardasil performed well, and Bridion extended its patent.
- The addition of Prometheus Biosciences is expected to boost Merck’s immunology presence.
- Anticipated M&A activity to strengthen the portfolio.
4Q2022 Quarter December:
- Merck closed 2022 positively with strong earnings and sales performance.
- Lagevrio and Keytruda were significant growth drivers.
- Expectation of cooling in 2023 due to waning Lagevrio demand.
- Positive outlook for 2024 with Keytruda’s market share gains and other oncology assets.
- Strong defensive characteristics and an almost 3.0% dividend yield appeal to conservative investors.
The 3-to-5-year Operational and Financial Outlook:
- Merck is forecast to grow earnings and revenue by 33.7% and 5% annually, respectively.
- EPS is expected to grow by 34.1% per annum.
- Return on equity is forecast to be 37.9% in 3 years.
FinViz Snapshot: https://finviz.com/screener.ashx?v=341&t=MRK
10-Year Historical Price Chart:
https://tvc-invdn-com.investing.com/data/tvc_695b2d96d60598a7432cbcf0d2e64ddc.png
Point & Figure Chart: (from StockCharts.com)
https://stockcharts.com/freecharts/pnf.php?c=MRK,PWTAMANRNO[PA][D][F1!3!!!2!20]
