Merck Shares Projected to Climb 12% Amid Accelerated Profit Expansion
Merck’s stock has surged 10% this year, outperforming the overall market trend.
(Note: The author is a financial writer and portfolio manager providing this fundamental analysis.)
Merck & Co. Inc. (MRK) has significantly outpaced the S&P 500 this year, with shares up 10%. This impressive momentum may just be the beginning. Industry analysts forecast an additional 12% increase, targeting a price near $69. This optimistic outlook is fueled by expectations of faster earnings growth in the near future.
Investor enthusiasm is not limited to analysts; options traders are also betting on a roughly 6% rise by mid-August. A key driver behind this positive sentiment is Merck’s cancer therapy, Keytruda, which continues to generate strong revenue and revitalizes the company’s growth prospects.
^SPX data provided by YCharts
Accelerated Earnings Growth
Since the start of the year, analysts have steadily raised Merck’s price target by nearly 6%, now averaging $69.05, according to YCharts. This bullish sentiment is grounded in projections that Merck’s earnings growth will accelerate from 6% in 2018 to over 10% by 2020.
Data on MRK Annual EPS Estimates from YCharts
Strong Bullish Sentiment in Options Market
Options traders are overwhelmingly optimistic about Merck’s prospects. The volume of bets anticipating a price rise by the August 17 expiration outnumbers bearish bets nearly 13 to 1. Nearly 18,000 open call contracts exist at the $62.50 strike price. Moreover, call options at the $65 strike price have surged over fourfold since early July, exceeding 38,000 open contracts. These $65 calls are priced around $0.55 each, requiring the stock to reach $65.55 by expiration to break even — implying a roughly 6% gain.
Attractive Valuation Among Pharma Giants
Merck stands out as one of the most attractively valued major pharmaceutical companies, trading at a forward price-to-earnings ratio of 13.7 based on 2019 earnings estimates. Only Pfizer Inc. (PFE) offers a more modest valuation at 12. In comparison, Johnson & Johnson (JNJ), Bristol-Myers Squibb Co. (BMY), and Eli Lilly and Co. (LLY) trade closer to 15 times forward earnings.
MRK Forward P/E Ratio data courtesy of YCharts
The prevailing positive sentiment among analysts and traders suggests Merck’s stock may continue its upward trajectory in the coming weeks. With earnings expected by month-end, strong results and confident guidance could further fuel the stock’s advance.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and manages the long-only Thematic Growth Portfolio. Typically, Kramer holds stocks for three to five years. For more on Kramer’s background and portfolio holdings, click here. This information is educational and not an offer or solicitation to buy or sell securities. Investments carry risk and are not guaranteed. Consult a qualified financial advisor or tax professional before implementing any strategies. Upon request, the advisor will provide a list of recommendations made in the past twelve months. Past performance does not guarantee future results.
If you have news tips for Investopedia reporters, please email tips@investopedia.com.
Discover the latest news and current events in Markets News as of 16-07-2018. The article titled " Merck Shares Projected to Climb 12% Amid Accelerated Profit Expansion " provides you with the most relevant and reliable information in the Markets News field. Each news piece is thoroughly analyzed to deliver valuable insights to our readers.
The information in " Merck Shares Projected to Climb 12% Amid Accelerated Profit Expansion " helps you make better-informed decisions within the Markets News category. Our news articles are continuously updated and adhere to journalistic standards.