Today we’re going to talk about Big Pharma – $Merck & Co (MRK.US)$ .

Under the influence of the interest rate hike environment and recession expectations, U.S. stocks have suffered successive setbacks. The S&P 500 has fallen by more than 18% during the year, almost entering a bear market. Investors have flocked to defensive sectors, and while the healthcare sector hasn’t quite soared in recent years, valuations remain attractive. Among them, many companies with high dividends and stable growth have performed well. For example, Merck, the protagonist of this article, has achieved an increase of more than 23% this year, and its stock price has risen steadily, reaching new highs during the year.

The focus of this article:

1. What is Merck’s brand moat?

2. How is the company’s performance?

3. What is the driving force behind the stock price rise?

4. Is the valuation expensive?

1. Sit on star products such as HPV vaccine

Merck is located in Kenilworth, New Jersey, USA. It is one of the world’s pharmaceutical giants. It has been leading the research and development of new medicines in the medical field. Its business covers tumor, vaccine, infectious diseases, animal health and other fields. It has a variety of popular medical products such as new crown oral medicine, quadrivalent nine-valent cervical cancer vaccine, hepatitis A vaccine, hepatitis B vaccine, PD-1 anti-cancer drug and so on.

In the field of vaccines, Merck and three other companies, GlaxoSmithKline (GSK), Sanofi, and Pfizer, are ranked as the top four vaccine companies, occupying an absolute advantage in the global vaccine market share. According to the 2021 financial reports of various companies, in dollar terms, vaccine sales are Pfizer 42.6 billion (including new crown vaccine 36.8 billion), Merck 10.1 billion, GSK 9.3 billion, and Sanofi 7.5 billion.

When it comes to the vaccine segment, Merck’s HPV vaccine Gardasil is the most eye-catching. Among the world’s major vaccine products in 2021, due to strong demand and Merck increasing supply, Gardasil increased by 44% year-on-year to $5.673 billion in revenue, surpassing the $5.272 billion sales revenue of Pfizer’s Prevnar series of pneumonia vaccines, and became the annual sales revenue Highest vaccine product.

In addition, Merck’s oncology product, Keytruda, is also an important support for the company’s sales performance. Keytruda, a cancer drug that harnesses a patient’s immune system to fight tumors, has been approved in dozens of indications around the world. According to the latest report on May 20, the European Medicines Agency recommended the approval of Keytruda for certain melanoma patients.

Merck’s amazing products in the market include the most popular new crown small molecule oral drug this year. The company’s first quarterly report for 2022 shows that its new crown oral drug Molnupiravi achieved revenue of US$3.2 billion during the reporting period. Compared with Merck’s expectation of Molnupiravi’s sales of US$5 billion to US$5.5 billion in 2022, the sales revenue in the first quarter has been realized for the whole year. 64% of the forecast, ahead of Pfizer’s $1.5 billion in sales of similar drug Paxlovid.

2. Steady growth and high dividends

At a time when recession expectations are gradually heating up, Merck’s financial data remains solid. The company achieved revenue of $15.9 billion in Q1, a year-on-year increase of 50%, significantly exceeding analysts’ previous expectations of $14.7 billion. Excluding the sales of new crown oral drugs increased by 19% year-on-year; Non-GAAP net profit was $5.429 billion, an increase of 84% year-on-year; earnings per share were $2.14, compared with $1.16 in the same period last year.

Based on better market performance, Merck has raised its global sales in 2022 to $56.9 billion to $58.1 billion, with an expected increase of 17% to 19%. Estimated at $7.12-7.27.

The revenue share of the three major products mentioned above are as follows:

Oncology drug Keytruda: $4.8 billion, up 23% year-over-year;

HPV vaccine Gardasil/Gardasil 9: $1.5 billion, up 59% year-over-year;

New crown oral drug Molnupiravi: $3.2 billion, an increase of 19% year-on-year.

In addition, the company declared a quarterly dividend of $0.69 per share at the beginning of the year (annualized to $2.76). Based on the current share price, the dividend yield is close to 3%, and it is also included in Goldman Sachs as one of its recommended high-dividend stocks.

3. Attractive valuation, analysts are generally optimistic

Wall Street analysts generally have a “moderate buy” rating on Merck, with an average price target of $98.2, about a 5% upside from the latest closing price.

Analysts at JPMorgan Chase believe that Merck’s core business has a good development momentum, and Molnupiravir’s sales upside potential is high in the short term. It is expected that there will be no surprises in the 2022 revenue guidance. He lowered his price target on the stock to $95 from $100, but maintained a buy rating.

According to Zacks, an investment research firm, the industry is currently valued at 14.9 times its forward 12-month price-to-earnings ratio (commonly used to assess the valuation of large pharmaceutical companies), while Merck is currently valued at 13 times, which is relatively attractive. .

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