Dow Jones newswires is carrying this, at the moment:
. . . .Goldman Sachs downgraded Merck to “neutral” from “conviction buy” and lowered major pharma sector rating to “neutral” from “attractive.” The firm sees a lack of near-term catalysts for Merck, and also expects big pharma to underperform the S&P 500. The sector downgrade reflects firm’s disappointment with post-merger earnings. "We expected earnings acceleration from greater-than-expected synergies and capital deployment to drive multiple expansion, but neither scenario has played out," firm writes. . . .
That seems about right -- though it is possible that Merck will see more synergy value in 2011 than 2010. The question -- in this market environment -- is who will be willing to wait around, to find out?
Separately (see graphic), we should shortly learn what Paulson did with its Merck position, during Q1 2010 -- increased; decreased or liquidated.
4 comments:
Can you comment on what (might) exactly is "...earnings acceleration from greater-than-expected synergies and capital deployment to drive multiple expansion"?
Were they perhaps thinking that the new Merck would take a more aggressive reduction in staff and sale/closing of duplicate sites approach?
Sure -- Great question!
That's a form of public company pig-latin:
Yesterday, Jamie Rubin asked Dick Clark, on the Q1 2010 earnings call, whether the second half of 2010 would be "a much better half" than the first half of 2010.
[At the January 2010 Goldman "CEOs, Unscripted" Conference in NYC, CEO Clark had said that the first half of 2010 would be bumpy, and not so good -- but the second half of 2010 would be "significantly better" than prior years' second halves.]
Yesterday, CEO Clark simply said the second half of 2010 would look a lot like the first half, in response to Jamie Rubin's poser.
It means the bulk of the merger benefit (whatever it turns out to be) will now appear in 2011.
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Thanks.
It seems Banc of America has reiterated an older buy recommendation, this afternoon, to defend the stock.
Whatcha' bet B of A gets the lead, left hand column role (that's where the lions' share of the underwriting spread is paid) in Merck's next public debt or equity offering?
Or an advisory role on the next M&A deal that Whitehouse Station announces?
[Conversely, I doubt Goldman, Sachs & Co. will get that role anytime soon.]
In any event, the price targets -- $43 v. $42 -- are very close (despite the Neutral v. Buy positions).
Remember that those targets reflect what would be a "fully-valued" perfectly performing, no additional bad news, Merck NYSE price -- 12 months from now. In other words, a wholly-theoretical price only.
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