Merck stock rises as UBS reiterates Buy rating after Verona Pharma acquisition

Investing.com - Merck (NYSE:MRK) stock received a reiterated Buy rating and $105.00 price target from UBS on Thursday. According to InvestingPro data, the pharmaceutical giant currently trades at a P/E ratio of 12.16 and offers a healthy 3.87% dividend yield, having maintained dividend payments for 55 consecutive years.

UBS analyst Trung Huynh maintained his positive stance on the pharmaceutical giant following Merck’s confirmed $10 billion acquisition of London-based Verona Pharma (NASDAQ:VRNA). The deal comes at approximately 23% premium to Verona’s last closing price, though this only brings the valuation back to its 52-week highs. With an overall financial health score of "GREAT" on InvestingPro and strong cash flows to cover interest payments, Merck appears well-positioned to execute this acquisition.

The acquisition represents roughly 2.7 times peak sales based on consensus estimates of $3.7 billion, which UBS notes is in line with industry precedents. The firm believes Merck’s scale and commercial experience should add value to Ohtuvayre’s launch, similar to benefits seen in recent deals like Acceleron. Get access to 8 more exclusive InvestingPro Tips and comprehensive analysis in our Pro Research Report, helping you make informed investment decisions.

UBS views this acquisition as a positive step in addressing criticism about Merck’s lack of business development activity, noting that investors have responded favorably to the announcement. The firm indicates more deals will likely be needed to fully address recent setbacks with Gardasil.

During a call, Merck stated it remains open to further acquisitions ranging from $1 billion to $15 billion, which UBS considers necessary to offset the upcoming Keytruda patent cliff in 2028.

In other recent news, Merck has made significant strides in its business operations. The company is nearing a $10 billion acquisition of Verona Pharma, with plans to pay $107 per share, marking a 23% premium over Verona’s previous trading price. This acquisition would expand Merck’s portfolio in respiratory disease treatments, notably acquiring Verona’s novel COPD treatment, Ohtuvayre. Cantor Fitzgerald maintains a Neutral rating on Merck, noting the Verona deal could enhance Merck’s growth and potentially become accretive to earnings by 2027. Meanwhile, Jefferies downgraded Verona Pharma to Hold, highlighting the acquisition’s implications on future sales potential.

Additionally, Merck’s application for a new HIV treatment, doravirine/islatravir, has been accepted by the FDA, with a target action date set for April 2026. This two-drug regimen showed promising results in Phase 3 trials, indicating non-inferior efficacy compared to existing three-drug regimens. Merck is also set to present new data from its HIV research at the upcoming International AIDS Society Conference. These developments underscore Merck’s ongoing commitment to advancing treatments in both respiratory and HIV research areas.

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