Saturday, October 4, 2014

Guggenheim Initiates Coverage On Merck -- Joins Deutsche At Price Target Of $65; Neutral Rating

Time to sip the piping hot Saturday morning coffee, and fresh pulpy chilled orange juice. . . while I update where Whitehouse Station stands, in the eyes of the various and sundry Wall Street. . . touts.

Guggenheim (new to covering Merck) now co-leads the touts' pack, with the highest 12 month price target -- at $65. [To be fair, though, DeutscheBank claimed this high water mark, over a month ago.] Even so, it seems reasonably clear that most analysts believe Merck is essentially "fully valued," now trading on the NYSE at over 31 times its 2013 GAAP earnings per share. I agree. There may be a little upside yet this year in the name, but only a little.

In my experienced view, the single biggest catalyst (at October 4, 2014 -- looking forward 12 months) will be whether Merck's Keytruda®, or BMS's Opdivo® wins first approval in the "highest burden" cancers, in the US, and the EU (i.e., the deepest and widest markets). Thus the faded background images in the graphic at right. We continue to expect that will generally turn out to favor BMS (to the tune of an incremental perhaps $20 billion to $25 billion per year in peak sales) -- but Merck will still likely garner annual peak sales of perhaps $7 billion to $10 billion, even if it is the second one to market in these "biggest burden" cancers. Here is Thursday's Intercooler item -- I am late with it, as I have been busy on other. . . forest trails, this week's end. [Separately, Merck did close -- on the sale of the Consumer Health assets -- to Bayer.]

. . . .Several analysts have recently commented on the stock. Analysts at Guggenheim initiated coverage on shares of Merck & Co. in a research note on Thursday. They set a “neutral” rating and a $65.00 price target on the stock. Separately, analysts at Jefferies Group raised their price target on shares of Merck & Co. from $60.00 to $62.00 in a research note on Monday, September 15th. They now have a “hold” rating on the stock. Finally, analysts at BMO Capital Markets raised their price target on shares of Merck & Co. from $62.00 to $64.00 in a research note on Friday, September 5th. . . .

[In addition, the number of shares held short in Merck declined almost nine per cent in the first half of September, compared to end of August levels.] As of September 15th, there was short interest totalling 24,454,599 shares, a decline of 8.8% from the August 29th total of 26,803,576 shares. Approximately 0.8% of the shares of the company are short sold. Based on an average daily trading volume, of 8,434,560 shares, the days-to-cover ratio is currently 2.9 days. . . .

A trend line -- of decreasing shares shorted (sold today, to be bought back at some future date, at a presumably lower price) -- is almost always a bullish sign. We will keep an eye on it, to see whether it continues. Have a great Fall weekend, one and all.

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