Friday, February 4, 2011

Merck Rises On NYSE, As Citi Drops Its Target From $39 To $34

Admittedly, it is only up a fraction, now but the rest of Wall Street is at least signaling a near term bottom around $32. . . not the $28 that some putative "Chicken-Littles" have called for.

I don't see a handle in the $20s as an even remotely fair low value for Merck, unless and until it loses the J&J arbitration completely, or settles on very unfavorable terms.

In any event, recall that the folks at Citi -- on the debt desks -- made a killing for nearly no work, just two months ago, co-leading the $2 billion Merck debt sale (click image at right for that story). So, we may assume that the Citi analysts are truly convinced that $34 is the near term (12 month) full value for New CEO Frazier's company.

In addition, Goldman Sachs, which firm has generally been more bearish on Merck than many of the other mega-houses (and has received absolutely no underwriting work, in retribution/recompense -- that is, Goldman is in Merck's penalty box, big time!) just came out with a lower 12 month target -- at $37 (honestly, the number I had a year ago -- and the number that's been the consistent top -- for the past year):

. . . .Merck estimates lowered at Goldman. Merck estimates were reduced through 2013, Goldman Sachs said. Company is spending more and also realizing lower gross margins. Neutral rating and $37 price target. . . .

That $37 is closer to reality -- in my estimation -- than the Citi number. Not much had changed, fundamentally from yesterday morning to this morning -- except that CEO Frazier isn't going to give "advance peeks" at quarter by quarter sales and EPS guidance, for a while now.

Oh. And. Yes. He had to take another $1.7 billion haircut -- on the pig Fred Hassan sold Dick Clark.

[I still think that may all be driven by a strategic decision to "go dark" on the J&J arbitration negotiations (thanks GSS!). . . .]

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