Is Merck’s Stock a Buy Now?

With shares of Merck (NYSE:MRK) trading around $58, is MRK an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Merck is a global healthcare company that delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. The company consists of four operating segments: the Pharmaceutical, Animal Health, Consumer Care, and Alliances segments, and one reportable segment in the Pharmaceutical segment. Merck aims to provide valuable healthcare products and services to consumers, animals, and companies in need worldwide. Look for the company to see rising profits as it advances the products and services of the healthcare field.

Rumors surrounding the sale of Merck’s consumer health unit should soon be put to rest, according to reports from Reuters and Bloomberg. Merck is in final talks with British company Reckitt Benckiser (RBGLY.PK) regarding the unit, which currently makes name brands like Claritin allergy medicine and Coppertone sunblock. Reuters reports that the company is expected to buy the unit for about $14 billion. Other bidders in the running along with the Slough, England-based Reckitt Benckiser are Procter & Gamble (NYSE:PG) and Bayer AG (BAYRY.PK), Bloomberg reports.

Should Reckitt Benckiser, perhaps best known for making the Durex line of condoms, succeed in purchasing Merck’s consumer health business, the company would become the world’s third largest producer of consumer health products. Currently, Reckitt Benckiser ranks just ninth in the same category. Despite the fact that talks between the two companies are now in their final stages, Reckitt Benckiser says it isn’t taking any risks. “We understand that we are part of a competitive process,” the company said Monday in a statement, per Bloomberg. “There is absolutely no certainty as to the outcome or timing of this process.”

T = Technicals on the Stock Chart are Strong

Merck stock has been surging higher in the last couple of quarters. The stock is currently trading near highs for the year and looks set to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Merck is trading above its rising key averages which signal neutral to bullish price action in the near-term.


(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Merck options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Merck options




What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options



June Options



As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Merck’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Merck look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





Merck has seen increasing earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with Merck’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Merck stock done relative to its peers, GlaxoSmithKline (NYSE:GSK), Novartis (NYSE:NVS), Pfizer (NYSE:PFE), and sector?






Year-to-Date Return






Merck has been a relative performance leader, year-to-date.


Merck provides essential healthcare products to consumers, animals, and companies around the world. The company is in final talks with British company Reckitt Benckiser. The stock been surging higher over the last couple of quarters and is currently trading near highs for the year. Earnings have been increasing while revenues have been mixed over the last four quarters, which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Merck has been a relative year-to-date performance leader. Look for Merck to continue OUTPERFORM.

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