Good Data May Be Coming For Merck (And This Analyst Is Bullish)

In a report published Thursday, BMO Capital Markets analyst Alex Arfaei upgraded the rating on Merck & Co., Inc. MRK from Market Perform to Outperform, while raising the price target from $65 to $70. "Although we didn't get the better entry point we were waiting for, we have become more optimistic on Merck's pipeline and believe that the upcoming data readouts should also raise Street expectations and lead to multiple expansion," analyst Alex Arfaei wrote. Merck's commercial and R&D execution were impressive. The company is expected to have "a good finish" in the back half of the year, Arfaei said, while adding that Merck appeared "on the verge of" five to six years of strong growth, driven by its higher margin specialty franchises, particularly Keytruda and Hep-C. Arfaei forecasted revenue CAGR of 7-8 percent and EPS CAGR of about 15 percent over the next three-to-five years, and believes that MK-8931 in Alzheimer's disease was a significant potential growth driver. In the report BMO Capital Markets noted, "After discussions with a number of experts at AAIC, we are more bullish on MK-8931, and now assign ~50% probability of approval in 1Q-2019 with risk-adjusted sales of $4.8B by 2024. We have low expectations for the Anacetrapib REVEAL interim look this year, and estimate 35% probability of success in 2017 with risk-adjusted sales of $2.5B by 2024."