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Merck upgraded by Guggenheim on growth in key products, positive outlook for trials


Continued growth of its drugs and a positive outlook on trials has put Merck back on Guggenheim’s radar. The popular stock was upgraded to buy from neutral with a price target of $104, an 18.7% upside from the last close. It marks a reversal from last year, when Guggenheim was negative on stalling drug approval and a lack of portfolio diversity. Now, analyst Seamus Fernandez said two of its key products, Gardasil and Keytruda, will continue to grow sales. Both beat estimates for 2022 and were up 26% and 36%, respectively, compared to a year ago. At the same time, Fernandez is optimistic on its trial drugs. Specifically, he said the third phase of Sotatercept for the Treatment of Pulmonary Arterial Hypertension, called STELLAR, is likely to be positive and predicted $4 billion is 2031 sales, 30% higher than the consensus. Merck also saw a recent court ruling in favor of the Januvia patent, which could extend exclusivity beyond 2023. That would significantly raise sales by more than a billion dollars per year through 2025. “MRK now trades at ~11.8x Street 2023 forecasts on a P/E basis and in our view is poised to beat 2023 estimates with margin-driven potential upside to consensus as the Januvia patent win makes its way into forecasts and as the business trajectory for key growth products Keytruda and Gardasil remains very positive,” Fernandez wrote in a note to clients Monday. To be sure, there are risks specific to medicine that could hurt the stock. STELLAR’s failure could mean a downside of 5 to 10%, but Fernandez said they would still be bullish elsewhere. Prices could be hurt if competitors could crowd the market or oncology more generally sees a price readjustment. Merck jumped 2.7% in the premarket on the report. — CNBC’s Michael Bloom contributed to this report.

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