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.

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.