Merck (MRK) Has Attractive Dividend, Growth Potential - Barron's

Shares of Merck (NYSE: MRK) are underperforming the broader stock market Wednesday despite a bullish report from Barron's Tuesday.

Barron's sees value in Merck with the stock down about 16 percent over the last year. Fears of the drug pipeline drying up have been overdone for Merck, Barron's argues.

Merck's diabetes and arthritis drug patents have years left on them, with future blockbusters in osteoporosis and cholesterol treatments in the works. Barron's believes the pipeline will offset any damage from the expected 2012 expiration of it's Singular exclusivity.

Barron's likes the company's 38 cents per share dividend payment each quarter.

Analysts expect Merck to get up to $30 per share in about a year, providing about 30 percent upside from today's trading range. Three catalysts are cited:

1. Merck will begin to see savings from it's merger with Schering-Plough two-years ago;
   
2. it will cut jobs and slash spending on unprofitable ventures; and
   
3. Merck has room to expand into emerging markets.

Shares of Merck are trading at 8.1x next year's earnings estimate, compared with peers Eli Lilly (NYSE: LLY) and GlaxoSmithKline (NYSE: GSK) at 9.9x and 10.7x, respectively.

Earnings expectations for fiscal 2011 are at $3.73 per share, up 9.1 percent from 2010. The Street is currently looking for 2012 earnings to rise 3 percent to $3.84 per share.

Merck said its cutting 13 percent of jobs through 2015, potentially increasing savings from $3.5 billion by 2013 to as much as $4.6 billion in 2015.

International sales also make up 55 percent of revenue; emerging markets accounting for about 15 of the total. One buy-side analyst sees emerging markets contributing about 25 percent in 10 to 15 years.

Investors are often cautious on pharma names given potential lawsuits from drug mishaps or an occasional patent litigation case. Additionally, some are eying possible downside to Merck in the cholesterol market should its Vytorin not establish a superior position in the market.

With a strong pipeline, strong dividend yield and future savings, Merck may be a stock worth getting a second opinion on: yours.

Shares are 0.4 percent higher Wednesday afternoon.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Baird on Nurix (NRIX) Earnings Amid 7% Drop: '2Q Print Solid as Breadth of Development Expands'
• Piper Sandler on FirstSun Capital Bancorp (FSUN): 'We expect shares to underperform on Friday'
• Buy one of the most compelling AI plays in China: BofA