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Valens Research

MRK - Embedded Expectations Analysis - 2020 04 09

Merck & Co., Inc. (MRK:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 14.9x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management appears concerned about KEYTRUDA, their spin-off, and revenue declines

Specifically, management may be concerned about projected revenue declines, their strategic growth initiatives, and the potential of their spin-off to be dilutive. In addition, they may lack confidence in their ability to expand operating margins, capitalize on key growth drivers, and improve their operational focus while still supporting their spin-off. Furthermore, they may be exaggerating their R&D investment opportunities, the value of their spin-off and core portfolios, and the potential of their dengue and CMV vaccines. Moreover, they may have concerns about KEYTRUDA revenue concentration risks, the progress of their anti-TIGIT therapy development, and the ability of Lynparza to sustain U.S. PARP inhibitor patient share. Management may also lack confidence in their ability to mitigate FX headwinds, meet their payout ratio target, and execute on their immuno-oncology strategy in China. Finally, they may be concerned about the sustainability of biosimilar and first-line hepatocellular carcinoma demand, and they may be exaggerating the potential of KEYTRUDA's 3 new approvals in Japan and the approval of ERVEBO in certain African nations
Underlying
Merck & Co. Inc.

Merck & Co. is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. The company's segments are: Pharmaceutical, which includes human health pharmaceutical products that consist of therapeutic and preventive agents for the treatment of human disorders, and human health vaccine products that consist of preventive pediatric, adolescent and adult vaccines; and Animal Health, which discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as a suite of digitally connected identification, traceability and monitoring products.

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Valens Research
Valens Research

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