Merck Stock Is Holding Back the Dow

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down following some mixed economic releases and a poor earnings release from Merck (NYSE: MRK  ) . As of 1:10 p.m. EDT the Dow is down 91 points, or 0.61%, to 14,749. The S&P 500 (SNPINDEX: ^GSPC  ) is down 10 points to 1,587.

There were three U.S. economic releases today.





ADP private-sector employment




Institute for Supply Management PMI




Construction spending




Source: MarketWatch U.S. Economic Calendar.

All three releases point to a slowing economy. The ADP private-sector jobs report showed that the private sector added just 119,000 jobs in April, down from 131,000 in March and below analyst expectations of 150,000. The Institute for Supply Management's Purchasing Managers Index fell to 50.7% from March's 51.3%, though it beat analyst expectations of 50.5%. Finally, construction spending dropped 1.7% in March, down from February's 1.5% growth.

The market is eagerly awaiting the Federal Open Market Committee's statement, which is expected to be released at 2 p.m. EDT. With recent data showing that the economy is slowing down but not contracting, the Fed is expected to make no change to QE3. The Fed is currently buying $85 billion of long-term assets each month in an effort to spur the economy on, and it has said it intends to continue doing so until inflation picks up or the unemployment rate drops to 6.5%. Any change to the Fed's actions or plans could make the market jump or drop.

For the second day in a row, a pharmaceutical company disappointed in its earnings release. Yesterday it was Pfizer, and today it was Merck, which is down 2.6%. Merck reported that earnings per share dropped 14% to $0.85 excluding one-time items, beating analyst expectations of $0.79. However, revenue dropped 9% to $10.7 billion, missing  analyst expectations of $11.1 billion. The big drop owed primarily to the loss of exclusivity for asthma drug Singulair. In the first quarter of 2012, Singulair sales reached $1.3 billion; this past quarter, the drug sold only $300 million as generics took market share. In other worrisome news, sales were down 1% for Merck's top drug combo: Januvia and Janumet, which are used to treat diabetes. The main reason the stock is down, however is that the company cut its full-year expectations by $0.15 to a range of $3.45 to $3.55.

It's not all bad news, though: Today Merck announced a $15 billion share buyback, which will be funded through new debt and earnings. This puts Merck's total buyback authorization at $16.1 billion, as $1.1 billion is still left from Merck's 2011 buyback authorization. The company expects half of the buyback to be completed in the next 12 months.

This titan of the pharmaceutical industry stumbled into 2013 and continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, the Fool tackles all of the company's moving parts, its major market opportunities, and reasons both to buy and to sell. To find out more, click here to claim your copy today.

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Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
^GSPC $2164.69 Down -12.49 -0.57%
S&P 500 INDEX CAPS Rating: No stars
MRK $62.96 Down -0.06 -0.10%
Merck and Co. CAPS Rating: ****