Hold Horses on Merck, Analysts Say

The big patent expirations, Scala adds, are the cholesterol drug Zocor in 2006; the osteoporosis drug Fosamax in 2008; the Cozaar/Hyzaar blood pressure medication in 2010; and the asthma drug Singulair in 2012. "We view Merck shares as unappealing," he concludes.

Protecting the Dividend

Scala says the company's dividend looks safe -- an assessment that Merck bulls, bears and fence-sitters share. How safe and for how long is a topic for debate.

Scala says the current dividend of $1.52 a share looks good through 2010. Arnold says the dividend looks safe for one to two years. The yield is 5.4%, and her $27.50 target price assumes a yield of 5.5%, which she says is at the top end of the historical range for Big Pharma companies.

Krensavage backs his strong buy rating because the dividend yield "helps support the stock while the investors wait for a pipeline of new products." Another Merck bull, Robert Hazlett of SunTrust Robinson Humphrey, told investors on Friday that his buy rating is bolstered by a "robust" dividend yield.

Even though earnings growth is "likely to be flat for a few years," the dividend "should materially aid total return during this time, and we believe it should remain intact near term," Hazlett says. However, if Merck continues to lose big Vioxx cases, it may have to cut the dividend, he adds.

Merrill Lynch is a market maker in Merck's stock and has had an investment banking relationship with the company. Credit Suisse First Boston has had an investment banking relationship. The other firms either have had no relationship or say they expect to seek or do business with companies mentioned in their research reports. Among analysts quoted, none owns shares of Merck except at SG Cowen where the firm says "the author(s) and/or members of their households" own Merck shares.

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