Citigroup Reiterates Buy Rating on Merck (MRK)

Citigroup is out with a research report this morning, where it reiterates its Buy rating on Merck MRK; it has a $45.00 price target on the stock. The Citi analysts said MRK's stock is likely to remain range-bound for the remainder of 2010, as the overhang from the Johnson & Johnson JNJ arbitration is not expected to be resolved until early 2011. They added that resolution of the arbitration, completion of the Merial-Intervet SP merger, and pipeline news flow are expected to place upward pressure on MRK's multiple. As for valuation, the analysts remarked, “We decreased our 2010 vaccine sales to $3.5B(-$60M); infectious diseases to $4.1B(-$100M), & removed Subutex from our estimates. These declines were partially offset by more robust sales of Singulair(+$100M). We decreased gross margin by 40bp to 75.5% to account for the 3Q10 miss. We lowered R&D as % of sales by 10bp to 18.0% & maintained SG&A at 27.4%. Our 22% tax rate is unchanged, but lowered share count by 9M.”