Introduction to Merck & Co., Inc. (MRK)

Merck & Co., Inc. (NYSE: MRK), one of the world's leading pharmaceutical companies, has been gaining significant attention from hedge funds lately. Despite recent market fluctuations, Merck remains a strong contender in the pharmaceutical sector, thanks to its robust pipeline of innovative drugs and a solid financial foundation. This article explores why Merck is considered one of the best pharma stocks to buy according to hedge funds.

Merck's Financial Performance and Growth Drivers

Merck's financial performance has been impressive, with a strong revenue growth of 6.8% year-over-year (YoY) in the fourth quarter of 2024, reaching $15.62 billion. The company's earnings per share (EPS) beat consensus estimates by 11 cents, showcasing its operational efficiency. However, the stock faced a significant drop after the earnings release due to soft guidance for 2025, which was largely attributed to a temporary halt in Gardasil shipments to China[4][5].

Key Growth Drivers:

• Keytruda: Merck's blockbuster cancer drug, Keytruda, continues to drive earnings growth with a 21% YoY increase in sales, reaching $7.8 billion in the fourth quarter[5].
• Pipeline Development: Merck has a promising pipeline with over 20 potential new treatments, many of which are in late-stage development. These include adult pneumococcal conjugate vaccines like WINREVAIR and CAPVAXIVE[4].
• Diversified Portfolio: The company's diversified portfolio includes both human health and animal health products, providing resilience against market fluctuations[2].

Hedge Funds' Sentiment on Merck

Hedge funds have been bullish on Merck, with 91 hedge funds holding positions in the company as of Q4 2024[1][3]. This strong support from hedge funds is driven by Merck's long-term growth potential and its position as a leader in the pharmaceutical industry.

Reasons for Hedge Funds' Optimism:

• Innovative Pipeline: Merck's pipeline includes several drugs with blockbuster potential, offering significant revenue opportunities[4].
• Strong Financials: The company boasts a strong balance sheet with a debt-to-equity ratio of 0.79 and an A+ credit rating, ensuring financial stability[4].
• Dividend Yield: Merck offers a competitive dividend yield of approximately 3.62%, making it attractive for income investors[3].

Challenges and Opportunities

Despite its strengths, Merck faces challenges such as the temporary halt in Gardasil shipments to China and potential future competition for Keytruda. However, these challenges also present opportunities for growth and diversification.

Addressing Challenges:

• Gardasil Sales: While Gardasil sales have been impacted by inventory issues in China, Merck expects growth to resume in the second half of 2025[4].
• Pipeline Expansion: The company is actively expanding its pipeline through business development, focusing on areas like cardiovascular disease and oncology[5].

Why Merck is a Top Pick for Hedge Funds

Merck's combination of a strong financial foundation, innovative pipeline, and competitive market position makes it a top pick among hedge funds. The company's ability to navigate short-term challenges while maintaining long-term growth potential is particularly appealing.

Key Factors:

• Undervaluation: Merck's stock is considered undervalued, trading at a lower P/E ratio compared to its historical average and industry peers[4][5].
• Market Position: Merck's leadership in oncology and its diversified portfolio provide a solid foundation for future growth[2].
• Innovation: The company's focus on innovation, including mRNA-based treatments, positions it well for future success[5].

Conclusion

Merck & Co., Inc. (MRK) stands out as a prime investment opportunity in the pharmaceutical sector, backed by strong hedge fund support. Its robust pipeline, financial stability, and competitive market position make it an attractive choice for investors looking for long-term growth and stability.