Merck Stock Up 7% Today – Time to Buy MRK Stock?

The price of Merck stock is going up more than 6% today following news that its experimental drug molnupiravir reduced the risk of hospitalization or death in COVID-19 patients by a significant degree.

During Phase 3 trials, the drug, which is being developed in partnership with Ridgeback Biotherapeutics, effectively reduced the risk of hospitalization or death by nearly 50%. Moreover, no deaths were reported among patients who took molnupiravir compared to 8 deceases in patients from the placebo group.

The drug is designed to modify the genetic code of the virus and it would be the first oral antiviral medication to be introduced if it is granted emergency used approval by the US Food and Drug Administration. The company expects to apply for such designation as soon as possible.

This Phase 3 trial involved 775 patients scattered across the world who had mild-to-moderate COVID-19.

“With these compelling results, we are optimistic that molnupiravir can become an important medicine as part of the global effort to fight the pandemic and will add to Merck’s unique legacy of bringing forward breakthroughs in infectious diseases when they are needed most.”, stated Robert M. Davis, the CEO and President for the pharmaceutical company.

Could this positive development result in a significant improvement in the firm’s top-line results? In the following article, I’ll take a closer look at Merck’s fundamentals and price action to possibly answer that question.

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Merck Stock – Technical Analysis

The price of Merck stock had been embarked in a downtrend since its December 2019 peak despite an improvement in the company’s top-line and bottom-line profitability during that period.

Just yesterday, the stock almost tagged the upper bound of the trend line shown in the chart but the price retreated from a 2% intraday gain to neutral territory for the day and just below the 50-day simple moving average during a session that saw above-average volumes.

Momentum oscillators for MRK stock are already picking up steam as the MACD has climbed above the signal line accompanied by steadily increasing positive histogram readings while the Relative Strength Index (RSI) just crossed the 50 level – typically a sign that bullish momentum is accelerating as well.

If this pre-market uptick materializes during the live session the move would result in a full-blown trend reversal for Merck stock with a short-term target set at $84 per share resulting in a total upside risk of 12% based on yesterday’s closing price of $75.1 per share.

Merck Stock – Fundamental Analysis

Merck has already secured a contract from the United States government to supply a total of 1.7 million courses of molnupiravir at $700 per course for a total of $1.2 billion in additional revenues for the firm.

Moreover, the company is planning to produce up to 10 million courses by the end of 2021 and those could produce a total of $7 billion for the firm. That figure would account for 14.5% of the company’s total revenues last year.

Net profit margins for Merck have ranged from 11% to 14% in the past three years. If we assume a similar number for future years, we could see Merck’s net income rising to around $7.7 billion using the upper bound of that range resulting in a 10% year-on-year jump in the firm’s bottom-line results.

However, moving forward, sales could experience an even more pronounced uptick as the market for COVID antivirals is practically virgin territory. Moreover, if the COVID-19 virus turns out to be a seasonal illness, as research seems to indicate, revenues from molnupiravir will have a long-lasting effect on the performance of Merck stock.

If granted emergency-use approval, this treatment could bring billions of dollars to Merck and result in a sizable improvement in its bottom-line performance. Moreover, the stock is currently offering a 3.5% dividend yield and it would be plausible to expect that the Board will approve a hike once the extra revenues from this treatment start to flow.

Overall, the outlook for Merck stock is bullish after this development from both a technical and fundamental standpoint.

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