Friday, September 17, 2010

End Of Week "Desk Cleanup" Item: Jefferies Has A "Hold" On Merck

While my near term target is two dollars below the Jefferies analysts' target (at $37), I do think they see Merck's near-term situation in a pretty balanced and realistic fashion.

According to the Jefferies & Co. analysis, the Merck near-term is all driven by the large (even if not highly likely) downside uncertainty, and only a small-to-nonexistent upside (even in a best case win for Merck) -- in the arbitration. So, no matter how the arbitration over non-US Remicade® and Simponi® rights turns out -- Merck isn't likely to see much stock price benefit.

Here's an investors' paper -- from early on the 16th (i.e., stale!), on it:

. . . .Jefferies & Co. is out with a brief analyst note this morning, where it initiates a Hold rating on Merck & Co.; it has a $39.00 price target on the stock.

The Jefferies analysts said that Merck faces several major binary risks over the next few years, most of which carry notable downside risk.

They added that, with the unpredictable and near-term nature of the Remicade/Simponi arbitration, they are initiating coverage with a Hold rating. . . .

So sorry to be late with this ratings item -- but it is certainly possible that the opening stages of the mentioned J&J arbitration are already underway.

Of course, the $64,000 question is whether a bad outcome in the arbitration is fully priced into today's Merck NYSE price. If it is not -- as many suspect -- Merck will see significant market cap erosion, if it doesn't fare well against J&J/Centocor, when the dust settles, later this month -- or mid-next.

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