On Wednesday, Citi updated its financial outlook for Merck KGaA, a leading science and technology company, by increasing its share price target to EUR210.00 from the previous EUR196.00. The firm maintained its Buy rating on the stock, which is listed on the Frankfurt Stock Exchange under the ticker MRK:GR and on OTC markets as MKKGY.
The revision of the price target reflects Citi's anticipation of a recovery in the Life Sciences and Semiconductors sectors, which together account for 56% of Merck's group sales. Citi now projects that Merck's revenue recovery will commence in the third quarter of the year, a quarter later than previously expected.
Citi's analysis also highlighted the potential impact of Phase III data for xevinapant, an investigational cancer treatment, and the possibility of Merck engaging in mergers and acquisitions with a budget of EUR 15-20 billion. The focus is expected to be on Life Sciences and the enhancement of the company’s pipeline through in-licensing efforts.
In the report, Citi republished its due diligence findings on xevinapant and shared insights from a Key Opinion Leader call with Professor Harrington. The firm anticipates that the interim phase will proceed smoothly, with Phase III data expected in the fourth quarter, projecting peak sales for xevinapant at EUR 1.4 billion.
Despite maintaining revenue forecasts, Citi has adjusted its EBITDA and EPS projections downward, accounting for foreign exchange rate fluctuations, dynamics in the Life Sciences and Semiconductor sectors, and increased pharmaceutical R&D spending.
Nevertheless, stronger underlying cash flows and revised guidance on the company's weighted average cost of capital and growth rates (now at 7.4% and 1.2%, respectively, compared to the previous 8% and 2%) have contributed to the new net present value-derived price target.
Citi's report concludes with an outlook on Merck's financial growth, forecasting a compound annual growth rate (CAGR) for sales, EBITDA, and EPS from 2024 to 2029 at 7%, 11%, and 12%, respectively. These projections place Citi's estimates up to 15% higher than the consensus.
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