Berenberg downgrades Merck stock rating to Hold amid Keytruda patent concerns

Investing.com - Berenberg downgraded Merck (NYSE:MRK) from Buy to Hold on Wednesday, while lowering its price target to $90.00 from $100.00. The pharmaceutical giant, currently valued at $202.55 billion, trades at an attractive P/E ratio of 12.5x and offers a solid 4.0% dividend yield. According to InvestingPro analysis, the stock appears undervalued at current levels.

The research firm acknowledged 2025 has been "largely successful" for Merck’s pipeline developments and deal-making activities, though these positive developments have not been fully reflected in the company’s share price. The company maintains robust fundamentals with $63.62 billion in revenue and an impressive 77.41% gross profit margin over the last twelve months.

Despite potential for stored performance gains, Berenberg cited significant uncertainty in Merck’s long-term sales outlook, particularly highlighting the looming 2028 patent expiration for Keytruda, the company’s blockbuster cancer treatment.

Berenberg expressed a preference to see Merck invest its "exceptional Keytruda cashflows more aggressively" to strengthen its long-term growth prospects beyond the patent cliff.

The firm projects approximately $32 billion in cash available for deals through 2027, before any additional debt financing, suggesting Merck has substantial resources for potential acquisitions to address its post-Keytruda growth strategy.

In other recent news, Merck & Company Inc. reported its second-quarter 2025 earnings, surpassing expectations with earnings per share (EPS) of $2.13, compared to the projected $2.03. However, the company’s revenue came in slightly below forecasts at $15.81 billion, missing the expected $15.87 billion. Additionally, Merck announced a significant move to acquire Verona Pharma Plc, planning to fund the $10 billion acquisition through the issuance of investment-grade corporate bonds. This bond offering includes up to six different segments, featuring a 30-year option.

In the realm of clinical trials, Merck, in collaboration with Daiichi Sankyo, has dosed the first patient in the HERTHENA-Breast04 phase 3 trial for a breast cancer treatment. The trial focuses on patients with hormone receptor-positive, HER2-negative breast cancer who have seen disease progression after specific therapies. Furthermore, Merck plans to present new data on cardiovascular diseases at the European Society of Cardiology Congress 2025, highlighting research on atherosclerotic cardiovascular disease, pulmonary hypertension, and heart failure. These developments reflect Merck’s ongoing efforts in both financial and research initiatives.

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