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It's not all doom and gloom surrounding


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The drugmaker's shares rose Wednesday after a Raymond James & Associates analyst raised his stock rating to strong buy from market perform.

The upgrade came a day after Merck spent much of Tuesday

promoting the progress of experimental products, describing cost-cutting efforts and providing analysts with additional tidbits about the impact of withdrawing the arthritis drug Vioxx.

Although no other analyst took as dramatic a step as James analyst Michael Krensavage, Merck's stock price over the last two days reflects a generally positive -- or at least a non-negative -- Wall Street review of the company's presentation. On Wednesday, Merck's shares gained 56 cents, or 1.9%, to $30.18. On Tuesday, Merck's shares closed at $29.62, adding 57 cents, or 2%.

Krensavage told clients Wednesday that he was raising Merck's rating because "we believe concerns about liability from Vioxx ... are obscuring value." He said Merck is akin to a convertible bond because "its 5.1% dividend yield is sustainable, and its shares could rally if new drugs succeed."

Although Merck has been hit with

475 personal injury lawsuits relating to Vioxx, Krensavage said he believes the company has a "substantial defense." Resolution of the Vioxx lawsuits could take many years, but investors' worries, he added, leave "a great company trading at a significant discount" to other Big Pharma companies.

"With shares trading on yield, we believe investors face reduced risk that the company will miss earnings estimates," he added. (He doesn't own shares; his firm says it expects to seek or receive compensation for investment banking services from Merck in the next three months.)

On the opposite end of the spectrum, Catherine J. Arnold, of Credit Suisse First Boston, reaffirmed her underperform rating on Wednesday. "Investors should sell Merck shares on strength, given the company's eroding earnings outlook," she said in a research report. "Merck's growth outlook is worse than projected by the market."

The company will suffer from shrinking profit margins, flat sales and the impending patent expiration of its Zocor cholesterol drug in mid-2006. The Vioxx liabilities and "lack of product launches sufficient to drive sales growth" add to her downbeat view of Merck.

She cut her 2004 earnings-per-share estimate by 1 cent to $2.60 and her 2005 EPS estimate by 10 cents to $2.45. She said Merck's dividend yield "may be the only reason to buy these shares." (Arnold doesn't own shares; her firm has an investment banking relationship.)