Merck & Company, Inc.

MRK Details

Merck & Company, Inc. (NYSE: MRK) is a global healthcare company focused on delivering innovative health therapies, through its medicines, vaccines, biologics, and animal health products. The company operates in two segments on the product basis, namely 1) Pharmaceutical segment, includes human health pharmaceutical (HHP) product and vaccines products (VP). HHP products consist of medicinal and preventive agents for the treatment of human diseases. The company markets HHP products to drug wholesalers, retailers, hospitals, and government agencies. VP consists of pediatric, adolescent, and adult vaccines. In addition, the company markets VP to physicians, wholesalers, and government entities 2) Animal Health segment discovers, manufactures, and markets a broad variety of veterinary medicines, vaccines, and health management services for all major animal species. The company divested its Healthcare Services segment in the first quarter of 2020. As of June 08, 2021, the company’s market capitalization stood at USD 184.33 billion.

Inorganic Growth Initiatives: On June 07, 2021, MSD Animal Health, a division of MRK, announced its intention to acquire the assets of LICA, a New Zealand-based leader in automation and technology for the dairy industry. However, the terms of the agreement were not disclosed. The acquisition is expected to enhance the company’s dairy farm management and livestock intelligence solutions portfolio, and strengthen its leadership in the animal health segment.

Completion of Organon & Co., spinoff: On June 03, 2021, the company completed the spin-off of Organon & Co., which was announced in February 2020. Organon is now an independent, publicly-traded company with a broad range of product portfolios in women's health. The transaction is expected to provide significant benefits for both Merck and organon shareholders and value for Merck shareholders.

Robust Q1FY21 Results: The company reported a 1.00% rise in total revenues to USD 12,080 million in Q1FY21 (ending March 31, 2021) compared to USD 12,057 million in Q1FY20 (ending March 31, 2020). The Pharmaceutical segment contributed 88.36%, and the Animal Health segment contributed 11.73% of the total revenues generated during the quarter. However, the company reported a 1.02% decline in net income to USD 3,186 million in Q1FY21 than USD 3,219 million in Q1FY20. As of March 31, 2021, the company stood with cash and cash equivalents of USD 6,981 million with long-term debt of USD 24,002 million.

Key Risks: The company generated most of its revenues from certain key products like Keytruda, Gardasil/Gardasil 9, Januvia, Janumet, and Bridion only. The company’s oncology portfolio, led by Keytruda, contributed 29.96%, 23.66%, and 16.95% of the total sales in FY20, FY19, and FY18, respectively. Accordingly, any event that adversely affects the demand or the markets for any of these products could significantly impact the company’s revenues and cash flows.

Outlook: The company expects its sales from continuing operations to be in the range of USD 45.80 billion to USD 47.80 billion, assuming the completion of the Organon spin-off for the full FY21.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

MRK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: MRK’s share price has decreased by 8.93% in the past nine months and is currently leaning towards the lower band of the 52-week range of USD 68.38 to USD 83.72. The stock is currently trading below its 200 DMA levels. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 85.98. Considering the robust product portfolio and pipeline, management’s endeavor to create shareholder value through corporate transactions, solid balance sheet, current valuation, and associated risks, we recommend a “Buy” rating on the stock at the closing price of USD 72.40, down by 0.55% as of June 08, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

Cannae Holdings, Inc.

CNNE Details

Cannae Holdings, Inc. (NYSE: CNNE) is a holding company that manages a group of investments by executing majority and minority equity investments in other businesses to achieve exceptional financial performance. As of March 31, 2021, the company’s primary investments include minority ownership interests in Dun & Bradstreet Holdings, Inc. (D&B), Ceridian HCM Holding, Inc. (Ceridian), Paysafe Limited (Paysafe), Optimal Blue Holdco, LLC (Optimal Blue), AmeriLife Group, LLC (AmeriLife), and QOMPLX, Inc. (QOMPLX); majority ownership stakes in O'Charley's Holdings, LLC (O'Charley's) and 99 Restaurants Holdings, LLC (99 Restaurants); and other minor equity and debt investments. As of June 08, 2021, the company’s market capitalization stood at USD 3.20 billion.

Sale of shares of Ceridian common stock: On May 21, 2021, the company sold 2 million common shares of Ceridian at USD 87.50 per share. The gross proceeds from this transaction will be approximately USD 175 million. CNNE controls around 8.0% of Ceridian stock, with 12 million shares.

Growth Investment in Entertainment: On April 1, 2021, the company announced a USD 32 million investment in Sightline Payments, a dynamic fintech company enabling the next generation of cashless, mobile, and omnichannel payment solutions for sports betting and entertainment activities, as part of its completed USD 100 million funding round. Consumer interest in online sports betting and iGaming has surged, thanks in part to the legalization of mobile gambling in several states throughout the US.

Q1FY21 Results: The company reported a slight decline of 0.63% in total operating revenue to USD 171.90 million in Q1FY21 (ending March 31, 2021) compared to USD 173 million in Q1FY20 (ending March 31, 2020). Total restaurant revenue contributed 97.32% of the total operating revenues in Q1FY21. The company reported negative earnings of USD 233.80 million in Q1FY21 compared to a profit of USD 638.10 million in Q1FY20. CNNE’s cash flow from operations stood at USD 6.00 million during Q1FY21 compared to a cash outflow of USD 34.30 million in Q1FY20.

Portfolio Investment as of May 2021 (Source: Investor Presentation, May 2021)

Key Risks: The Covid-19 pandemic disrupted the restaurant and hospitality industry globally. Commensurately, the company had to close its restaurants, modify its working hours, and implement cost-saving measures throughout its restaurant group operations. As a result, the Covid-19 pandemic has negatively impacted the company's financial situation, and any prolonging of the same is likely to hurt the company's financials further.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CNNE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CNNE has declined by 16.99% in the past six months and is currently leaning towards the lower band of the 52-week range of USD 34.04 to USD 46.57. The stock is currently trading below its 200 DMA level. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 41.44. Considering the decline in the stock price in the past six months, new investments, significant track record, and strong balance sheet, we recommend a "Buy" rating on the stock at the closing price of USD 35.02, up by 0.09% as of June 08, 2021.

* The reference data in this report has been partly sourced from REFINITIV.