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Is Merck Rallying After That Nasty Tumble?


Although most analysts who track Merck (MRK) (MRK) remain bearish on the beleaguered drugmaker, some upbeat investors are buying. Merck pulled its Vioxx/ COX-2 Inhibitor for arthritis (11% of sales) off the market in September after studies linked it to increased risk of heart attacks. The stock plunged -- from 45 on Sept. 29 to 26 by Nov. 9 -- but has since crept up to 31.62. Still, it's selling at a "fire-sale price," says Carl Birkenbach of Birkenbach Management, which has bought shares. Despite the "negative aura" surrounding Merck, he sees it beating analysts' reduced 2006 consensus earnings forecast of $2.41 a share; he predicts $2.50. The price, he says, already reflects the lawsuits that face Merck. It does not, however, take account, he adds, of new drugs in the pipeline -- and the likely return of Vioxx. He notes that a panel in Canada recently recommended allowing Vioxx back into the market. In February a U.S. group called for similar action. Michael Krensavage of Raymond James & Associates, a rare bull, tags Merck a "strong buy" because its 4.8% dividend provides an "attractive return." Its new drugs include a series of vaccines, such as Gardasil, for cervical cancer. His price target is 42.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial


Silicon Valley State of Mind
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