Merck: Positioned for Growth and Expansion with a Diverse Product Portfolio

In today's edition, we will track the fundamental readings of long-term bullish companies in strong (TigerTrade Top 1 Gainer) concepts each week and look forward to your attention and discussion.

Disclaimer: Capital at risk. This is not direct financial advice or a recommendation to acquire or dispose of any investment, but for communication only.

It was a short week, with stocks pulling back and individual stock news taking the focus. Stocks pulled back this week, with several Fed speakers towing the hawkish line.

The best-performing concepts are Warren Buffett holdings, home stay economy, digital music streaming, food delivery and tesla concept.

Considering the different perceptions of the stock, this time TigerPicks choose $Merck(MRK)$ to have a fundamental highlight to help users understand it better.

$Merck(MRK)$

Merck, a prominent player in the pharmaceutical industry, recently reported its first-quarter financial results for 2023, showcasing its ability to meet market expectations and sustain high demand for anti-cancer drugs. With a diverse portfolio comprising the Pharmaceutical and Animal Health segments, which contributed significantly to the company's revenue, Merck continues to attract the confidence of major institutional investors.

Despite facing challenges from the Inflation Reduction Act, Merck's strategic position remains strong. In this article, we delve into the company's performance, highlighting its success in oncology, vaccines, and other key areas, as well as its promising future prospects.

Merck, one of the leaders in the pharmaceutical industry, released its financial results for the first quarter of 2023, which not only continued the trend of Wall Street analysts' expectations but also managed to demonstrate that the demand for anti-cancer drugs, which account for 44.1% of the company's total revenue remains high. At the same time, the company conducts business in two operating segments, Animal Health and Pharmaceutical, whose product sales accounted for 87.8% of Merck's total revenue in the first quarter of 2023.

Author's elaboration, based on 10-Q

At the same time, the five largest shareholders of Merck, with a combined share in the company equal to 27.16%, have long been such Wall Street mastodons as Vanguard Group, BlackRock, State Street, Wellington Management Group, and Geode Capital Management. As a result, this is one factor in their confidence in Merck's bright future, despite the looming pressure from President Biden's Inflation Reduction Act.

Author's elaboration, based on Yahoo Finance

Due to quarterly and year-on-year revenue and net income declines since the beginning of 2023, Merck's share price has shown a marginal decrease of about 2.7%, behind major healthcare competitors $Eli Lilly(LLY)$, $Novartis AG(NVS)$ and $Novo-Nordisk A/S(NVO)$.

Author's elaboration, based on Seeking Alpha

We continue our analytics coverage of Merck with an "outperform" rating for the next 12 months.

Merck Oncology

The company's oncology portfolio remains key, specifically Keytruda.

Merck Investor Presentation

Merck Investor Presentation

Keytruda has strong patent protection, with no expected threats for the next 5-years at least. The drug is expected to keep growing into 2026+ and we expect revenue to continue growing. The drug continues to achieve new indications, and we expect that growth to continue at least into the latter half of the decade, making Keytruda a major earnings driver.

Additionally, even when patents expire, we expect competition to take several years to ramp up, providing a nice tailwind.

Merck Vaccines

Gardasil, as a vaccine, is another market where Merck is a leader.

Merck Investor Presentation

Merck Investor Presentation

Sales have continued to increase dramatically, especially outside the U.S., with new indications and a ramp up in demand. Sales have annualized at $8 billion, and this is another drug where the company has patent protection until the late-2020s. That will also help to protect patent revenue and earnings for the company, highlighting its strength.

Merck's Other Businesses

The company's other businesses such as animal health also remain strong.

Merck Investor Presentation

Merck Investor Presentation

For the company, animal health provides a strong source of diversification, with much less volatility due to government / population dynamics. Demand remains strong for the company. The company has had some supply challenges, but overall, we expect this business to maintain its modest strength and continued growth.

Merck FY 2023 Guidance

Putting this all together, the company's 2023 guidance, which we partially discussed above, should enable increased shareholder returns.

Merck Investor Presentation

Merck Investor Presentation

Merck expects strong margins and modest share repurchases to have roughly 2.55 billion outstanding shares. The company has a share price of just under $111, with a GAAP P/E of 18.6, and a non-GAAP P/E of 16. That's a relatively low valuation given that we expect the company's earnings to grow going into the end of the decade.

The company's growth will also be supported by Prometheus Biosciences, a more than $10 billion acquisition, that will increase the company's pipeline candidates and enable the company to increase shareholder returns.

Better Than It Seems

Pharma industry revenue is growing. According to Statista.com, the largest segment is Oncology Drugs. Revenue is forecast for an annual CAGR of +5.39% between 2023 and 2027. Considering the high costs and decades needed to research, develop, and gain approvals in each country to sell a drug, and to market it to wary medical professionals, we believe this is a core industry that ought to be part of the retail investor’s portfolio. Merck is a good start.

Merck offers investors great upside potential with minimal risk. Here are some factors to consider.

• Pharma is a slow but steady growth industry;

• Global demand for more effective drugs is rising rapidly.

• Merck & Co is the 4th largest U.S. pharma company giving it market power to carve out territories, set prices, control supply, and production, and build brand name recognition in order to limit competition.

The table below is an overview of Merck’s late-stage clinical development programs (updated May 3, 2023).

chart

Merck's Pipeline (Merck)

The two most important Merck & Co products target diabetes and cancer. 11.3% of the U.S. population has diabetes; another 8.5M people are undiagnosed and thus untreated so far. Januvia (sitagliptin) is one of the best-selling diabetes drugs globally generating about $2.8B in revenue in 2022.

Merck’s blockbuster cancer drug, Keytruda, along with other drugs, claims the National Cancer Institute, treats breast cancer, skin cancer, colorectal cancer, endometrial cancer, renal cell carcinoma, esophageal cancer, gastroesophageal junction cancer, stomach cancer, non-small cell lung cancer, other carcinomas, cervical cancer, urothelial carcinoma, Hodgkin lymphoma, primary mediastinal large B-cell lymphoma, head and neck cancer, and other solid tumors. Keytruda sales show no signs of slowing.

Nature Journal estimates sales of Keytruda will top $24B in 2023.

chart

Keytruda Revenue (Statista)

The company's animal health sector deserves more than the short shrift it gets from the media and analysts. The sector includes livestock, fish, and pet care. Merck's products and services are growing at a CAGR of over 8% annually in North America. Merck Animal Health has a presence in more than 50 countries. Products are available in ~150 markets.

chart

Animal Healthcare (HealthforAnimals)

Stock Price Forecast:

Here are the target price forecast for the future 12 months from analysts on CNNMoney.com.

The 23 analysts offering 12-month price forecasts for Merck & Co Inc have a median target of 127.00, with a high estimate of 135.00 and a low estimate of 102.00. The median estimate represents a +10.86% increase from the last price of 114.56.

Hope this analysis helps you get more understanding of the company's whole image, Tiger Picks will follow up the monthly performance as a longterm track.

Resource:

https://seekingalpha.com/article/4612088-merck-mrk-approaching-accumulation-phase-expanding-product-portfolio

https://seekingalpha.com/article/4610061-merck-strength-is-nothing-to-be-afraid-of

https://seekingalpha.com/article/4609569-merck-is-climbing-higher-with-growth-potential

What are your thoughts on $Merck(MRK)$?

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