Since February 2013, almost nothing has changed at Merck -- of a material nature. As we enter the turn, on the thrid quarter of 2013, Merck continues to make bank, more by financial lever-pulling, than pure operational improvement. Even so, Whitehouse Station can continue to deliver, through about mid-2017, even if nothing gets better organically, within the operations of the businesses -- and probably through late 2015, even if there is some material erosion in the businesses. That's my assessment. Do your own diligence here.
In short, I'd say don't bet against Merck in the near term -- it is a great defensive play at the moment, with a lush dividend to clip. So do so, by all means.
However, Ed Silverman -- whose opinion I greatly respect -- made the case, in Forbes yesterday, that Merck needs another major restructuring. I am unconvinced, despite how much I like Ed.
. . . .Leerink Swann increased its EPS estimates on shares of Merck (MRK) through 2014 as lower R&D costs will help improve earnings over the next few quarters. In the report, Leerink Swann maintained its market perform rating and set a price target of $48.45. . . .
[And Ed's take:]
Actually, Fernandez is being kind by describing top-line growth as lackluster. For the first six months of the year, Merck sales fell nearly 10 percent, to nearly $21.7 billion. Meanwhile, R&D spending was essentially flat at roughly $4 billion, which means R&D spending accounted for 18.5 percent of sales compared with 16.7 percent during the same period last year. And marketing and administrative expenses fell 3 percent, to $6.13 billion, but accounted for 28.3 percent of sales, up from 26.3 percent. . . .
Of course, both of them can be right -- Merck could do just fine through 2017; and it might also benefit from a shakeup between now and then. My bet? Not on Chairman Kenneth Frazier's watch. In any event, here is the lead-off item -- on Seamus Fernadez's price target.
4 comments:
The restructuring is already under way
Understood -- but I think these folks envision something far more radical.
Namaste
-- condor
That is what I think is coming!!! Roger's comments suggest radical changes is on its way.
Condor, one thing that has changed in the last 6 months or so is the patience the CEO has shown towards internal reshuffling working groups. As part of the merger, and promised 'synergies', he had group A led by the head of sales and marketing working on the right structure to make the New Merck deliver on the merger projections.
They haven't come up with the goods and, running interference for them has been the finance organization doing all that they can with those financial levers you mention. The CEO has now ousted Group A from their charge and assembled Group B led by the head of Manufacturing and Procurement. The further makeup of Group B shows more promise than Group A and, internally, many have confidence in the second group meting out the tougher decisions.
The new (old) head of MRL is just a sideshow to all of this but it seems like everyone is finally ready to get down to brass tacks and do what needs to be done. I agree with your assessment not to bet against Merck at this point - both you and the analysts are likely to get what you see coming sooner than later.
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