Barclays On Merck: Too Much Underlying Value To Ignore

• Merck & Co., Inc. MRK shares are down 13 percent in the last six months, having plunged in August and September and declining steadily in November.
• Barclays’ Geoff Meacham assumed coverage of the company with an Overweight rating and a price target of $66.
• Following the underperformance of Merck’s shares, the stock seems to be discounting all the risks and headwinds, Meacham stated.

Merck’s shares have underperformed the DRG and S&P 500 over the past year. The pressure on shares has been on concerns surrounding Remicade in the EU, the Keytruda immuno-oncology strategy, and the potential impact to the Januvia franchise from SGLT-2s.

Analyst Geoff Meacham said that although there have been several headwinds and risks “that make Merck a "show me" story,” there appears to be “too much underlying value to ignore,” even under the most potential negative scenarios.

While Remicade could erode further and there may be a slowdown in Januvia, these are already reflected in Merck’s shares, Meacham mentioned. He added that Remicade could decline 15 percent ex-FX in 2016, in a conservative model. The decline would be due to “fewer new patient starts, competition from biosimilars, and new oral therapies.”

In the report Barclays noted, “Rapid anticipated SGLT-2 class growth is likely to impact Januvia modestly going forward, but combination use should moderate potential declines, though we also see movement toward fixed dose SGLT-2/DPP-4 combinations as the preferred choice over separate multiple pills.” Merck and Pfizer Inc. PFE are also co-developing ertugliflozin, which is currently in Phase 3.

“Even if pipeline assets aren't blockbusters, they add up and are nearly free at the current valuation,” Meacham wrote.