Is Merck Stock A Buy As Keytruda Faces A Looming FDA Challenge?

Merck stock is under pressure this year as investors await a potential challenge for blockbuster cancer treatment, Keytruda.




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Later this month, the Food and Drug Administration will run a three-day panel to discuss the benefits and risks of Merck‘s (MRK) Keytruda in some forms of cancer. This follows confirmation studies that failed to show the benefit of Keytruda in bladder cancer and as a second option in liver cancer.

Keytruda won’t be the only batter headed to the plate. The panel is also slated to discuss — and potentially revoke — approvals for Bristol Myers Squibb‘s (BMY) Opdivo and Roche‘s (RHHBY) Tecentriq.

Merck has also received $268.8 million to help it adapt and expand facility space to produce a Covid vaccine from Johnson & Johnson‘s (JNJ). But U.S. regulators have temporarily paused use of that vaccine after six female recipients experienced blood clots.

Still, the pharmaceutical giant recently finished its acquisition of Pandion Therapeutics. Longtime Chief Executive Kenneth Frazier is set to depart on June 30. And the company recently scrapped a Covid-19 treatment that would need additional testing to gain authorization.

So all in all, is Merck stock a buy now?

Merck Stock Fundamentals: Earnings, Sales Climb

During the fourth quarter, adjusted Merck earnings popped 14% to $1.32 per share. But that came in 6 cents short. Sales grew 5% to $12.51 billion, but that also lagged expectations for $12.67 billion, according to FactSet.

Guidance was more bullish, however. For the year ending in 2021, Merck expects to earn $6.48-$6.68 per share on $51.8 billion to $53.8 billion in sales. The low end of guidance easily topped expectations for $51.7 billion and $6.30, respectively.

Nearly a third of sales, 32%, stemmed from cancer treatment Keytruda. Keytruda sales grew 28% to $3.99 billion. Also bullish, sales of human papillomavirus vaccine Gardasil climbed 44% to $998 million. But $1.33 billion in sales of diabetes drug Januvia marked a fall of 6%.

Fourth-quarter metrics failed to fall in line with CAN SLIM rules for investing, which advise investors to look for companies with recent quarterly growth of 20%-25%, or better. Still, big pharma companies like Merck can post gains without experiencing huge bouts of growth.

In the first quarter, analysts polled by FactSet expect Merck to earn $1.61 per share on $12.61 billion in sales. On a year-over-year basis, earnings would rise 7% and sales would grow 5%.

What Do Annual Metrics Say About Merck?

As of midday April 22, Merck stock was down 4.6% for the year.

The stock ranks ninth by Composite Rating in the industry group of pharma companies. The 35-company Medical-Ethical Drugs group ranks only No. 171 out of 197 groups tracked by Investor’s Business Daily.

Last year, Merck’s sales grew 2% to $47.99 billion. That decelerated from 11% growth in 2019.

For 2021, analysts expect sales to rise 8% to $52 billion. Income is projected to increase 9% to $6.50 a share. That follows 14% growth in 2020.

Technical Analysis Of The Pharmaceutical Company

Merck stock has a Composite Rating of 55 out of a best-possible 99. The CR is a measure of a stock’s key growth metrics over the past 12 months. This puts Merck stock narrowly above the top half of all stocks, regardless of industry group.

Shares also have a Relative Strength Rating of 17, reflecting the 12-month performance of Merck stock. This means the pharmaceutical company’s stock performed in the lowest 17% of all stocks in the past year.

It’s also key to watch chart patterns. Merck stock is currently forming a cup base with a buy point at 85.70, according to MarketSmith.com.

Merck Stock News: Helping J&J With Covid Vaccine

In early March, President Joe Biden announced Merck would help Johnson & Johnson produce its coronavirus vaccine. Merck will receive $268.8 million in funding from the Biomedical Advanced Research and Development Authority to help expand and make available facility space to do so.

The company has also scrapped development of a Covid treatment that would require additional testing and two potential vaccines that proved inferior to others and natural infection.

Merck is moving ahead with Ridgeback Bio on a Covid treatment for outpatients. But on April 15, the companies said they wouldn’t continue testing in hospitalized patients.

Earlier this month, Merck said Keytruda proved superior to a placebo as an additional treatment in patients with kidney cancer following surgery.

Merck also just finished buying Pandion for $60 per share. Pandion went public last July.

Is Merck Stock A Buy Now?

Based on CAN SLIM rules for investing, it is not time to buy Merck stock.

Shares are forming a cup base, but remained far from their buy point on April 22.

Moreover, though Merck’s sales and earnings grew in the fourth quarter, both measures still failed to meet the desired bar of 20%-25% growth. Still, big stocks like Merck can add gains without hitting massive growth streaks.

Keep tabs on more top stocks to buy or sell. Also, check out IBD research for more stocks to buy and watch.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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