Merck Analysts Focus On Fundamentals, Keytruda Strength Following Guidance Cut

Merck & Co., Inc. MRK shares came under pressure in Tuesday's session after the pharma company lowered its full-year guidance.

The Merck Analysts

Cantor Fitzgerald analyst Louise Chen reiterated an Overweight rating and $107 price target.

SVB Leerink analyst Daina Graybosch maintained an Outperform rating and lowered the price target from $98 to $95.

Q1 Underlines Merck's Fundamental Strength, Cantor Says 

Some parts of Merck's business benefited from stocking/panic buying, while the pandemic uncertainty led to a reduction in guidance, Cantor analyst Chen said in a Tuesday note.

The strong quarterly results underscore the long-term fundamental strength of the company's business, the analyst said.

Merck's cancer immunotherapy Keytruda notched sales of $3.284 billion, ahead of the $3.24-billion consensus estimate following a shortfall in the fourth quarter of 2019, she said. 

The reduced full-year guidance factors in reduced access to hospitals and other health care sites; the virus outbreak peaking in the second quarter in the U.S. and Europe; social distancing remaining in force through the third quarter; and a full return to normal operations in the fourth quarter, Chen said. 

"Sales growth across oncology, vaccines, animal health, and select hospital/specialty care products as well as margin expansion opportunities, remain underappreciated, in our view."

Cantor expects multiple expansion to drive Merck shares higher.

See Also: Gilead's Remdesivir Reaches Goal In NIAID-Sponsored Coronavirus Trial

SVB Leerink Projects Strong Keytruda Sales In 2020

The operational changes Merck is bringing about to mitigate the COVID-19 risk to clinical trials could translate to a small mid-term competitive advantage, SVB Leerink analyst Graybosch said in a Tuesday note. 

The analyst expects Keytruda sales to remain strong in 2020, with the six-week dosing approved Tuesday adding to its advantage as the "tried-and-true" option for patients treated during the pandemic.

Merck is using the full strength of its vaccine organization for the COVID-19 task, she said. 

The guidance reduction primarily reflects a largely physician-administered portfolio, strong dollar and exposure to animal health, according to SVB Leerink. 

MRK Price Action

After ending Tuesday's session down 3.33% at $81.18, Merck shares were trading down another 1.85% at $79.68 at the time of publication Wednesday.