On Friday, Guggenheim Securities adjusted its outlook on Merck (NS:PROR) & Co Inc (NYSE:MRK) shares, reducing the pharmaceutical giant's price target from $130.00 to $122.00 while reaffirming a Buy rating on the stock. The revision by Guggenheim analyst is primarily due to several updates to the firm's financial model for Merck.
Analyst's updates to the model include accounting for the fourth quarter of 2024's in-process research and development (IPR&D) expenses, which stem from license agreements for LaNova LM-299 and Hansoh HS-10535. Moreover, the analyst has raised the projections for R&D and SG&A expenses based on recent comments from Merck's management.
The new model also reflects an increase in the effective tax rate to 17% for 2025 and beyond, again aligning with management's guidance. In a significant change, revenue estimates for favezelimab have been removed following the December announcement of the discontinuation of its clinical development.
Further adjustments include revised revenue forecasts for several of Merck's products. The analyst lowered expectations for Januvia, Bridion, and ex-US Winrevair, while increasing projections for Welireg, Prevymis, and Isentress. Currency fluctuations have also been considered, resulting in a substantial reduction in international revenue estimates for 2025.
Lastly, the analyst has refined the discounted cash flow (DCF) calculation to better represent the partial year value of the current year. These comprehensive updates to the financial model have led to the lowered price target, as increased operating expenses and tax rates are anticipated to impact Merck's financial performance.
Despite these adjustments, Merck maintains a healthy 3.22% dividend yield and trades at a P/E ratio of 20.99, with InvestingPro analysis suggesting the stock is currently undervalued relative to its Fair Value.
In other recent news, Merck & Co., Inc. has seen significant developments in its operations and product offerings. The National Medical (TASE:PMCN) Products Administration of China approved the use of GARDASIL® for males aged 9 to 26, marking it as the first HPV-prevention vaccine for males in the country. This expansion of GARDASIL's indication is a significant advancement in public health efforts to combat HPV-related diseases.
Merck has also entered an exclusive global licensing agreement with LaNova Medicines Ltd. for LM-299, an investigational PD-1/VEGF bispecific antibody targeted at cancer treatment. The company has also announced positive results from two pivotal Phase 3 trials for its investigational HIV-1 treatment regimen, doravirine/islatravir (DOR/ISL), meeting primary efficacy endpoints.
Analyst firms have adjusted their ratings on Merck's stock, with BMO (TSX:BMO) Capital Markets downgrading it from Outperform to Market Perform, citing concerns over the performance of its Gardasil franchise in China and potential challenges for its cancer drug Keytruda. Bernstein maintained its Market Perform rating on Merck's stock, despite the company's recent strategic moves.
In other developments, Merck has entered the obesity treatment market by in-licensing a preclinical oral small molecule, GLP-1RA HS-10535, from Hansoh Pharma. The company also reported a 4% increase in third-quarter revenue for 2024, reaching $16.7 billion, driven by strong sales of its cancer drug KEYTRUDA and the introduction of WINREVAIR. These are the recent developments from Merck's operations.
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