Stock Market in Frankfurt: Dax Tops Records Again, but Merck Shares Take a Hit
The Dax index continued its impressive run on Wednesday, breaking records yet again. The leading German index climbed 0.16% in the first hour of trading to reach 16,560.04 points. Since hitting its low in October, the Dax has surged over 13%.
However, the good news wasn't shared by all. Shares of Merck KGaA, a prominent German pharmaceutical company, saw a sharp decline of 13%. This was a result of two studies on its drug Evobrutinib, which is meant to treat multiple sclerosis, failing to produce the desired results. Consequently, HSBC downgraded Merck shares to "Hold" and eliminated Evobrutinib's sales estimates from its valuation model.
The pharmaceutical sector was left disappointed with Merck KGaA and Fresenius on Wednesday. Fresenius, another German pharmaceutical company, was hit by government energy subsidies that prevented it from declaring a dividend for the current year. A trader commented, "Fresenius was a safe dividend stock."
Meanwhile, the MDax, an index of mid-sized companies, showed a mild improvement of 0.43%. Despite this, it's still far from the Dax's record high set in 2021. The eurozone index EuroStoxx 50 also gained 0.2% during the middle of the week, reaching its highest level since the beginning of August.
Evotec, a biotech company's partner, received approval in China for a drug to treat sleep disorders. Evotec is now entitled to double-digit royalties on net sales generated by Zhejiang Jingxin Pharmaceutical with Dimdazenil (EVT201). However, Evotec's share price gains have been dwindling recently.
Insight:
Merck KGaA's share price is affected by multiple factors, including its revenue and earnings performance, market sentiment, and analyst views. A major concern is the company's high P/E ratio, suggesting that investors are paying a premium without strong earnings growth to support it. Despite these challenges, the broader DAX index has been performing well, driven by gains in other sectors.
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Additional Information:
- Merck KGaA's Q4 2024 revenue was $15.62 billion, a 7% year-over-year increase, while net income came in at $3.74 billion, $0.16 lower than expected.
- Morgan Stanley downgraded Merck KGaA's stock from Overweight to Equalweight and reduced its price target from EUR190.00 to EUR160.00.
- The DAX index rose 0.67% to a new all-time high, driven by gains in the Telecoms, Food & Beverages, and Industrials sectors.
- The Healthcare sector, where Merck KGaA operates, has experienced slow growth and lack of significant developments, which has impacted investor excitement.
- Merck KGaA's balance sheet is strong and pays a dividend, but these factors alone don't offset concerns about the company's earnings growth and valuation multiples.
