Merck & Co., Inc. (NYSE:MRK) — At one point yesterday, Merck was one of only two stocks of the Dow-30 to be in the black, and at the close MRK led the Dow-30 field, up 1.38%.
The gain was a result of an increased target for the stock by Bank of America/Merrill Lynch from $57 to $70. The analyst at Merrill Lynch also increased the stock’s rating from “neutral” to “buy” due to what he termed a huge oncology-related opportunity and a large market share for its new lung cancer drug.
The report to which the analyst referred was a positive data report on Merck’s key immune-oncology drug Keytruda. The drug was noted in a recent report by Standard & Poor’s as “taking an early lead in front line monotherapy.” The stock has gained over 17% so far this year.
Merrill Lynch has not released its report to the public as of this date, however the consensus estimated earnings for MRK this year is $3.75, up from $1.56 in 2015 according to S&P.
Q3 earnings are expected to be released on Oct. 25, with an average estimate of 98 cents. Merck pays an annual dividend of $1.84 for a dividend yield of 2.9%.
Look for a general revision of this stock’s target price from S&P’s estimated target of $64.
Technically, MRK’s rise from about $48 in January didn’t break to a bull market until it exceeded its bearish resistance line at about $56 in June. The breakout had a short run to $60 before pulling back to its 50-day moving average and bullish support line at about $57.
On Aug. 4, the stock sprang from the 50-day moving average, opening a break-away gap from $58.23 to $60.74, which evolved into a trading band from $61 to $63, where it now resides.
Despite yesterday’s excellent tape action, I would be reluctant to chase MRK at the current closing price of $62.51. However, if it should pull back to under $60, which is within the open gap, I would be a buyer of MRK with a trading target of $68 for a targeted gain of 13%.
Long-term investors should consider buying this stock as a cornerstone investment in the healthcare group.
