Ariel Investments LLC - Ariel Global Fund on Merck KGaA
Thesis
Ariel bought Merck KGaA on the view that biopharma spending is recovering after inventory destocking and funding constraints. The inflection is most visible in Process Solutions, which benefits from recurring revenue, deep customer integration and high switching costs. Improving orders support the earnings recovery, while Ariel believes the share price does not fully reflect the company's competitive strength.
“we do not believe the stock price fully reflects the strength of Merck’s competitive position”
Key risks
- Weak demand in academia
- Weak demand in China
- The biopharma spending recovery could be slower than expected