Shares of Merck and Co. (NYSE: MRK) this week pared some of their recent gains even as the ex-dividend date approaches. While most investors wouldn’t want to miss the opportunity, some may find the valuation too high. The pharma giant is scheduled to pay 61 cents in dividend next month, which justifies analysts’ buy rating on the stock with a price target that represents a 10% upside.
Popular cancer drug Keytruda continues to be the main growth driver for Merck, which accounted for about a quarter of its revenues in the last quarter. Recently, the FDA granted priority review for an additional indication of the drug, spurring a modest stock rally. With its close rivals facing generic competition, Keytruda might retain dominance in the oncology space going forward and play a bigger role in Merck’s top-line growth.
The good news is that unlike its peers who depend too much on their respective flagship products, Merck’s revenue sources go beyond Keytruda. What gives the company an edge is its prowess in the other areas of drug development, such as the vaccination lineup. Also, with a promising development pipeline in hand, Merck has more room for expansion.
The stock had a slow start to the week despite the company announcing its decision to acquire biopharmaceutical company ArQule for about $2.7 billion, through one of its subsidiaries. Merck expects to boost its cancer portfolio by leveraging ArQule’s kinase inhibitor development program. The transaction is tentatively scheduled for closure in the first quarter.
In a similar deal, Sanofi (SNY) and Wall Street firm Synthorx on Monday entered into an agreement under which the French pharma company will acquire the latter for $2.5 billion, which is significantly higher than its current market value. The buyout is expected to give a fillip to Sanofi’s oncology portfolio.
For the third quarter, Merck reported a double-digit increase in earnings and revenues, aided by the continuing growth of the pharmaceutical segment. At $1.51 per share, adjusted earnings were up 27% year-over-year on revenues of $12.4 billion. Buoyed by the positive results, the management raised its full-year guidance.
Shares of Merck jumped to a nine-year high last week, continuing the steady uptick. The stock gained 17% since the beginning of the year and 7% in the past six months while witnessing significant volatility.