Merck is a buy, this portfolio manager says

Pharma giant Merck & Company (Merck Stock Quote, Chart, News NYSE:MRK) touched an almost twenty-year high last week, but the stock could go higher, says investment manager David Driscoll, who argues that while other pharmaceutical companies seem to be fresh out of ideas, Merck is now rolling out the hits.

Merck hit a high of $87.87 per share last week, the first time since early 2001 at that mark and capping off what’s been a banner year for the stock which is now up 14 per cent year-to-date.

Merck’s recent surge came after third quarter earnings beat estimates in late October, backed by strong sales for immunotherapy cancer drug Keytruda, which surpassed $3 billion in revenue for the Q3. Sales of Keytruda were up 62.5 per cent year-over-year to $3.07 billion, ahead of the consensus forecast of $2.88 billion.

Overall revenue climbed 15 per cent to $12.40 billion, also ahead of the $11.64-billion consensus estimate, while adjusted earnings of $1.51 per share beat the $1.24 per share forecast. (All figures in US dollars.)

“We achieved another quarter of strong revenue and earnings growth as we continue to realize the benefits of our sustained investment in research and development and our focus on commercial execution,” said Kenneth C. Frazier, chairman and CEO in the quarterly press release.

“We are confident that the investments we are making now will allow us to convert cutting-edge science into medicines and vaccines of great benefit to patients and value to shareholders,” Frazier said.

It’s that focus on building up its product line that sets Merck apart from many of its pharma peers, says Driscoll, President and CEO of Liberty International Investment Management, who spoke to BNN Bloomberg last Friday.

“When we talk about biologics and new products coming, Merck has actually done quite well,” says Driscoll.

“Their dividend growth rate last year was 15 per cent after five years being five [per cent] because they’re now coming into a new cycle with new products coming out. Earnings beat by 14 cents and revenues were up by 12 per cent, so that’s pretty big for the pharmaceutical sector where a lot of them are just twiddling their thumbs right now.”

“If you want to own it, I have no problems with it. It’s a big, old pharmaceutical firm. I currently like one of my Top Picks [Novo Nordisk],” he says.

Merck’s vaccine business has been growing, as well, hitting $2.5 billion in sales for the
last quarter, as demand for its chickenpox, measles and human papillomavirus vaccines
saw international growth.

Last month the European Commission announced that Merck was being given approval to market its Ebola vaccine, Ervebo, first developed in Canada and already being administered in Africa under emergency guidelines related to the Ebola outbreak in the Democratic Republic of the Congo.

Also last month, Merck announced positive Phase 3 clinical results for heart drug vericiguat, being developed in partnership with Bayer, which was found to reduce the risk of heart failure hospitalization or cardiovascular death in heart failure patients when given in combination with available therapies.