Merck an Attractive Trade (NYSE:MRK)

Merck & Co., Inc. (NYSE:MRK) is the behemoth of a drug maker known world-wide, second only to Johnson & Johnson.  Merck 's current market cap is $112.5B and over the past 12 months shares have traded between a 52-week low of $30.70 and a 52-week high of $41.56.  Merck & Co Inc shares are now trading with a P/E Ratio of 7.6 and EPS of 4.79.  At last check MRK shares are trading at $36.10, down -0.55%/ $-0.20 and volume standing at 10.72M shares traded.

Making the decision to trade Merck can be tough.  Bret Jensen over at SeekingAlpha is a making a case for Merck though.  This is what he has to say.

Prognosis: The stock is down 10% since the start of the year despite executing well on integrating Schering – Plough and moving efficiently to gain cost savings from merger. Pipeline of new drugs was improved significantly by merger as well.

Valuation: MRK is selling for approximately 11 times this year’s consensus earnings and 9.5 times next year’s projected earnings. It is selling at the low end of its five year range based on Price/Earnings, Price/Book Value, and Price/Cash Flow. It has a double AA rated balance sheet and sports a 4.3% dividend yield.

Catalysts: There are several factors that we believe should provide support for a higher stock price in the near and medium term:
1. Should take 3.5B out of cost structure via merger efficiencies by 2012
2. One of the stronger pipelines in the industry, including Tredaptive for atherosclerosis, Simponi for autoimmune diseases
3. Almost 50% of sales comes from overseas
4. The dollar value of the global drug market is projected to grow 4%-6% in 2010.

Recommendations: Given its growth prospects, improving pipeline, cost reduction efforts, and solid dividend yield; we believe Merck is undervalued. In our opinion, the stock should be trading at a more reasonable rate of approximately 11-12 times next year’s projected earnings of around $3.84. Our target Price is $42-$46, up from the current price of $36.30.

See Jensen's whole story here.