What’s Happening With Merck Stock?

+12.27%
Upside
90.59
Market
102
Trefis
MRK: Merck logo
MRK
Merck

Merck stock (NYSE: MRK) has seen a 21% rise YTD, significantly outperforming its peers and the broader markets, with Johnson & Johnson stock up 4%, Pfizer stock down 6%, AbbVie stock up 12%, and the S&P500 index down 19%. There are a couple of factors aiding Merck’s stock growth. Firstly, the company’s Q1 performance was solid and well above the consensus estimates. Its top-selling drug Keytruda garnered $4.8 billion in sales, reflecting a 23% rise y-o-y. Sales of its Covid antiviral pill – Molnupiravir – co-developed with Ridgeback Therapeutics saw sales of $3.2 billion. The company also raised its full-year outlook, boosting investor confidence.

However, Merck is more in the limelight for its possible acquisition of Seagen Inc. in a deal value that could exceed $40 billion. [1] This acquisition, if successful, subject to regulatory approvals, will likely be looked at as a positive for Merck, enhancing its cancer drugs portfolio. Seagen’s key products are – Padcev, Tukysa, and Adcetris – each a potential blockbuster drug that can help Merck post more robust revenue growth.

Although Merck appears to have strong prospects, it faces headwinds from the current weakness in broader markets. The S&P500 has now entered near bear market territory with rising concerns of slowing economic growth given the high inflation, Fed action, and supply chain disruptions. These factors may impact MRK stock performance, as well.

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Furthermore, we find MRK stock to have only a little room for growth and estimate Merck’s valuation to be $99 per share, reflecting only a 6% upside from its current market price of $93, implying that investors are likely to be better off waiting for a dip in MRK stock for better gains in the long-term. At its current levels, MRK stock is trading at 13x forward adjusted earnings, in line with the last three-year average of 13x, making the stock fairly valued. Our estimate doesn’t consider the recent developments around the Seagen acquisition. That said, if this deal goes through at a reasonable price, it is likely that MRK stock may see higher levels. The price being discussed for Seagen is reportedly above $200 a share [2] For more information on Merck’s business model and revenue trends, check out our dashboard on Merck’s RevenueHow MRK Makes Money.

While MRK stock looks fairly valued, it is helpful to see how Merck’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Xylem vs. Merck.

Despite inflation rising and the Fed raising interest rates, Merck stock has risen 21% this year. But can it drop from here? See how low Merck stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Jul 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MRK Return 2% 21% 57%
 S&P 500 Return 3% -18% 74%
 Trefis Multi-Strategy Portfolio 7% -18% 223%

[1] Month-to-date and year-to-date as of 7/8/2022
[2] Cumulative total returns since the end of 2016

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Notes:
  1. Merck Explores Purchase of Biotech Seagen, By Cara Lombardo, Miriam Gottfried, and Dana Cimilluca, The Wall Street Journal, June 17, 2022 []
  2. Merck Is in Advanced Talks to Buy Seagen for Roughly $40 Billion or More, By Cara Lombardo, Dana Cimilluca, and Jonathan D. Rockoff, The Wall Street Journal, July 7, 2022 []