Fitch Ratings has downgraded pharmaceutical company Merck &
Co's rating to A from A+, though it also revised the outlook to
stable from negative, citing improving margins.
Shares of Merck were recently down less than 1% in midday
trading.
The ratings firm expects Merck's leverage--a combination of
total debt and Ebitda--to remain about 1.7x for the next few years,
which is consistent with the A rating.
Given that Merck has a "strong industry scale," according to
Fitch, and is making progress in its late-stage pipeline, the
ratings firm believes that future downgrades are unlikely.
Fitch also estimated that Merck will generated about $3.7
billion to $3.8 billion in free cash flow this year as margins
improve, and that the threat of sales falling due to patent
expiration is manageable.
Merck in March increased its stock-buyback authorization by $10
billion, a move the company said "reiterates our confidence in the
company's long-term business strategy and future prospects
In February, Merck reported that fourth-quarter sales fell 7.4%
to $10.48 billion, with foreign-exchange accounting for three
percentage points of the drop. Sales of the anti-inflammatory drug
Remicade, which Merck markets in certain countries outside the
U.S., declined 10% due to competition from biosimilar versions in
Europe.
Write to Angela Chen at angela.chen@dowjones.com
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