Why Merck Stock Flew Higher on Friday
Key Points
The company easily beat analyst estimates for both revenue and net income.
Market players didn't seem overly worried about the future of its top drug.
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The positive sentiment engendered by Merck's (NYSE:MRK) solid third-quarter results posted on Thursday carried over into the following trading session. It wasn't only the vibes; several analysts tracking the durable pharmaceutical company raised their price targets on its equity. The stock climbed more than 2% as a result, in contrast to the S&P 500 index's relatively steep decline of 1.8%.
A third-quarter trouncing
Investors found plenty to like about Merck's quarterly figures. Total sales grew by 5% to over $18 billion, predictably driven by its blockbuster cancer drug Keytruda. Net income not under generally accepted accounting principles (non-GAAP, or adjusted) fell by 4%, but the metric was still well in the billions at nearly $6.2 billion.
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Both figures easily topped the average analyst estimates, as did management's top- and bottom-line guidance for the entirety of 2026.
Several pundits tracking Merck wasted little time lifting their price targets on the stock. Exactly half of this country's "big four" banks did so, with Bank of America (NYSE:BAC) Securities' Jason Gerberry ticking his higher, to $165 per share from $163. His peer Chris Schott of JPMorgan Chase (NYSE:JPM) unit J.P. Morgan upped his to $175 per share from $165. Both analysts maintained their equivalents of buy recommendations.
The right mix
I wasn't all that shocked about Merck's convincing top- and bottom-line beats, as it has a generally solid lineup of popular medications led by Keytruda (although there's some fear about the future given that the drug is approaching its patent cliff).
It also has quite an active pipeline, so there's a fine chance for it to end up with another blockbuster in its mix.
Meanwhile, the company trades at forward levels that are basically in line with other pharmaceuticals while paying a relatively generous dividend, currently yielding 2.3%. I think this is a solid play in the healthcare space with room to grow, if modestly, and it's a fine income stock too.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Merck. The Motley Fool has a disclosure policy.
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