Leerink Believes Keytruda Can Carry Merck Stock Higher

Merck stock has found chart support at a 20% pullback from its annual high

by Josh Selway

Published on Mar 12, 2018 at 10:03 AM

Dow stock Merck & Co., Inc. (NYSE:MRK) has fallen under pressure in recent months. MRK shares suffered a huge bear gap back in October after the company pulled its European marketing application for Keytruda, and last month they were hit when rival Bristol-Myers Squibb (BMY) announced a positive trial update for Opdivo. However, Merck stock is bouncing today following a bullish brokerage note.

Specifically, Leerink upgraded the blue chip to "outperform" from "market perform," while maintaining a price target of $66. The covering analyst expects the company to upwardly revise its estimates for Keytruda over the next year or so, adding the drug will hold off Bristol-Myer's Opdivo to maintain its position as market leader for non-small cell lung cancers. MRK stock is up 1.7% at $56.02 in response.

The $56 level -- the site of the year-to-date breakeven mark -- has been troublesome for the equity in recent weeks, but the $53-$54 region has been supportive since October. In fact, the $53 mark is roughly a 20% decline from the shares' 52-week high of $66.41, suggesting it could continue to represent a layer of technical support going forward.

Options traders have been betting bullishly in recent weeks, too. For starters, call buying has more than tripled put buying during the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). And in the last two weeks in particular, the June 60 call has seen the largest increase in open interest by a long shot.

The majority of covering analysts agree with Leerink's bullish assessment, too, with seven of 13 handing out "strong buy" recommendations. Plus, the average 12-month price target remains up at $66.24 -- a more than 18% premium to current levels.

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