Merck (MRK) Stock Might Surge 10%, Resistance Then Gets Tough

There is more room on the upside, but resistance ahead could temper gains for Merck (MRK).
By Bruce Kamich ,

NEW YORK (TheStreet) -- We continue to check the medicine cabinet today for drug names. Let's look at Merck & Co.  (MRK) - Get Report .

In this chart of MRK, above, we can see that prices have rallied above the 50-day Moving Average (MA) which is now turning flat. The On-Balance-Volume (OBV) line has been rising for the past month giving confirmation to the advance, and there is a bullish divergence during August and September between the lower lows in price and the higher lows in the momentum study.

Stepping back and looking at the MRK chart above, we see that the OBV line has been moving up for two months on this weekly time frame. The MACD oscillator is now crossing from below zero. There is more room on the upside before prices run into the 40-week MA, and MRK could push up into the overhead resistance in the $56 to $60 area, but this resistance is probably going to present a problem at some point.

TheStreet Ratings team rates MERCK & CO as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

We rate MERCK & CO (MRK) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, expanding profit margins and impressive record of earnings per share growth. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 104.0% when compared to the same quarter one year prior, rising from $895.00 million to $1,826.00 million.
  • The gross profit margin for MERCK & CO is rather high; currently it is at 63.47%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MRK's net profit margin of 18.12% compares favorably to the industry average.
  • MERCK & CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, MERCK & CO increased its bottom line by earning $4.10 versus $1.46 in the prior year. For the next year, the market is expecting a contraction of 13.4% in earnings ($3.55 versus $4.10).
  • MRK, with its decline in revenue, slightly underperformed the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 4.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • In its most recent trading session, MRK has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • You can view the full analysis from the report here: MRK
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