Fitch Downgrades Merck

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.

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