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Below is a list of today's twenty-five most distressed stocks (according to their Altman Z-Score or Z''-Score, respectively) with a share price of $5 or higher. For details on how this ranking list is compiled, please click here.
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MRK - Worth a P/E of 120?
The Merck-Schering Plough merger is over a year old, and has not exactly filled investors with hope. The economies of scale have not become apparent, and the only tangible outcome so far is the thousands of jobs lost and dozens of sites closed in the name of cost-cutting. Moreover, while the company continues to sit on a mountain of cash (thereby giving it a healthy Altman score of 2.4), earnings are meager, resulting in an eye-popping PE score of 120. Even competitor Pfizer, known for growth by merger, has a PE only 1/10th as high. While Merck has been a staple of blue chip portfolios for decades thanks to its healthy dividend (currently yielding over 4.5%), a valuation like this can only be supported for so long by the price.
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Analysts are giving it a more reasonable forward P/E, of under 9x. Do you think they're being overly optimistic about their estimates of MRK's future earnings?
BTW, be sure to tweet your post so you it gets entered in the contest.
I think the forward P/E is probably reasonable. However there are much greater headwinds facing Merck than a lot of its competitors. Aside from the patent cliff many of the big pharmas are facing, I think they are likely to lose the arbitration over Remicade, which would be an immediate hit, and also cast the entire recent merger into doubt, further undermining support for its already weak valuation.
Looks as if my embedded link didn't work. Regarding the pending arbitration:
http://www.reuters.com...
OK, thanks for the elaboration. FYI, embedded HTML is disabled here, but web addresses are automatically shorted and hyper linked.