Zeev's Turnips Patch-No Politics (ZEEV)

[marginnayan]

Merck - Ability to overcome liability

Our analysis of MRK's Market Cap to Sales ratio relative to that of history suggests the market may have discounted $25-35 billion relating to MRK's potential liability on Vioxx litigation.

On reviewing balance sheets and cash flow statements of MRK, we believe the company has healthy liquidity and operating cash flow to support the current level of dividend payment and also capital expenditure.

The historical review of drug litigation shows that oftentimes class action suits are denied, and it is difficult to show causality.

In contrast to the Lancet piece, we believe that the potential liability against Merck is smaller than the market assumes and that Merck will weather the storm.

Stock Rating:
New: 2-Equal weight
Old: 2-Equal weight

Sector View:
2-Neutral
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Lehman Brothers Report Summary on Merck and Co. (MRK)
Dated 11/05/2004