Is Merck Stock A Buy As The Company Puts Up $1.85 Billion In Pandion Buy?

Merck stock was under pressure in February after the company issued a disappointing fourth-quarter report on the heels of its decision to scrap two “inferior” coronavirus vaccines.


In late February, Merck announced a $1.85 billion plan to acquire Pandion Therapeutics (PAND). But the news didn’t help Merck stock. Pandion is working on treatments for autoimmune diseases, but it’s still in early-stage testing.

Further, Merck (MRK) announced on Feb. 4 that longtime Chief Executive Kenneth Frazier would step down on June 30. Robert Davis, the company’s current executive vice president of global services and chief financial officer, will take up his helm on July 1.

The ongoing pandemic had a $400 million impact on fourth-quarter sales and a $2.5 billion impact on full-year revenue. In response, Merck stock fell on Feb. 4. Shares are now forming a new buy point out of a flat base.

Also, in January, Merck sold its equity stake in coronavirus vaccine-maker Moderna (MRNA). Now, Merck is focusing on treatments for Covid-19. One is being developed under a partnership privately held Ridgeback Biotherapeutics. The other is an antiviral drug.

So all in all, is Merck stock a buy now?

Merck Stock Fundamentals: Earnings, Sales Climb

During the fourth quarter, adjusted Merck earnings popped 14% to $1.32 per share. But that came in 6 cents short. Sales grew 5% to $12.51 billion, but that also lagged expectations for $12.67 billion, according to FactSet.

Guidance was more bullish, however. For the year ending in 2021, Merck expects to earn $6.48-$6.68 per share on $51.8 billion to $53.8 billion in sales. The low end of guidance easily topped expectations for $51.7 billion and $6.30, respectively.

Nearly a third of sales, 32%, stemmed from cancer treatment Keytruda. Keytruda sales grew 28% to $3.99 billion. Also bullish, sales of human papillomavirus vaccine Gardasil climbed 44% to $998 million. But $1.33 billion in sales of diabetes drug Januvia marked a fall of 6%.

Fourth-quarter metrics failed to fall in line with CAN SLIM rules for investing, which advise investors to look for companies with recent quarterly growth of 20%-25%, or better. Still, big pharma companies like Merck can post gains without experiencing huge bouts of growth.

In the first quarter, analysts polled by FactSet expect Merck to earn $1.62 per share on $12.66 billion in sales. On a year-over-year basis, earnings would rise 8% and sales would grow 5%.

What Do Annual Metrics Say About Merck?

As of midday trading on Feb. 25, Merck stock was down roughly 9.2% for the year.

The stock ranks 10th by Composite Rating in the industry group of pharma companies. The 35-company Medical-Ethical Drugs group ranks only No. 171 out of 197 groups tracked by Investor’s Business Daily.

Last year, Merck’s sales grew 2% to $47.99 billion. That decelerated from 11% growth in 2019.

For 2021, analysts expect sales to rise 8% to $51.9 billion. Income is projected to increase 9% to $6.46 a share. That follows 14% growth in 2020.

Technical Analysis Of The Pharmaceutical Company

Merck stock has a Composite Rating of 33 out of a best-possible 99. The CR is a measure of a stock’s key growth metrics over the past 12 months. This puts Merck stock above one-third of all stocks, regardless of industry group.

Shares also have a Relative Strength Rating of 5, reflecting the 12-month performance of Merck stock. This means the pharmaceutical company’s stock performed in the lowest 5% of all stocks in the past year.

It’s also key to watch chart patterns. Merck stock is currently forming a flat base with a buy point at 85.70. But shares remained well below their entry in midday action on Feb 25.

Merck Stock News: Pneumonia Vaccine At FDA

Merck stock slipped on Jan. 12 after the company said the Food and Drug Administration accepted its application for a pneumococcal vaccine candidate in people ages 18 and older. The European Medicines Agency is also reviewing an application for the vaccine.

Shares further dipped on Jan. 21 after Merck said it wouldn’t develop a pair of coronavirus vaccines that proved inferior to others and natural infection. Instead, the firm is focusing on two potential treatments for Covid-19.

Merck gained FDA approval for Verquvo, a drug that lowers the risk of cardiovascular death or hospitalization on Jan. 20. But that news also didn’t help Merck stock.

Earlier this month, Merck said a combination of Keytruda from Lenvima outperformed Sutent in patients with advanced kidney cancer. Keytruda is Merck’s drug and Lenvima is marketed by Eisai. Sutent is a Pfizer (PFE) medicine.

Specifically, the combination of Keytruda and Lenvima reduced the risk of disease progression or death by 61% vs. Sutent. At the median, patients on the combination lived for nearly two years before their disease worsened. That compares to nine months for Sutent patients.

On Feb. 25, Merck announced its plan to buy Pandion for $60 per share. Pandion went public last July.

Is Merck Stock A Buy Now?

Based on CAN SLIM rules for investing, it is not time to buy Merck stock.

Shares are currently forming a new flat base, but are far from their entry.

Moreover, though Merck’s sales and earnings grew in the fourth quarter, both measures still failed to meet the desired bar of 20%-25% growth. Still, big stocks like Merck can add gains without hitting massive growth streaks.

Keep tabs on more top stocks to buy or sell. Also, check out IBD research for more stocks to buy and watch.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.


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