SG Cowen upgraded Merck & Co. (MRK ) to strong buy. After the close of trading Jan. 23, the drug maker posted $0.75 vs. $0.66 4Q EPS.
Analyst Stephen Scala says Merck has the lowest valuation of big-cap drug stocks. He sees $3.25 EPS for 2001.
Scala says the shares are down 15% this year vs. the drug group, which is down 10%. Merck is trading at 10% discount to the drug group. Scala notes that 2000 sales are up 23%, and its EPS is up 19%.
Five products are contributing 61% of sales, which are growing at 35%, so strong financial performance should continue, according to Scala. He cites the upcoming trigger of an FDA advisory panel review of Vioxx on Feb. 8.
Scala adds that underperformance was so extreme that Merck and Pfizer could disproportionately benefit as investors revisit the drug group.