analysts and calls -- ML Message Board

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Biotech / Medical : analysts and calls -- ML

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From: tom pope	5/10/2007 9:00:46 AM
	of 238

Industry/Sector Updates U.S. Major Pharmaceuticals We believe that strength of 1Q07 results bodes well for 2Q07E performance. Also, it appears that large-cap stocks are attracting more money flows, which is good for pharmaceuticals. Our ‘07 EPS projections are 5% above consensus for both MRK & SGP. Our MRK estimate is $3.07 vs consensus’ $2.90 & SGP estimate is $1.35 vs consensus’ $1.29. We recommend employing diagonal call spreads on Buy-rated MRK & SGP. We continue to be constructive in near-term bolstered by our belief that healthy revenue growth & cost constraints will drive further outperformance for group. We finance near term calls by selling longer dated calls at higher strike prices. If near-term call options land "in-the-money", investor will have right to purchase shares at a price lower than spot price & incur profit. At that point, investor will effectively hold a covered call.

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