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On Wednesday, Citi analysts made a significant adjustment to Merck (NSE:PROR) & Co. Inc.’s (NYSE:MRK) stock, downgrading it from Buy to Neutral and reducing the price target from $115.00 to $84.00. The revision comes as Merck faces growth challenges, particularly with the impending loss of exclusivity (LOE) for its blockbuster cancer drug Keytruda in 2028.
The analysts noted that while the market has already accounted for the potential impact of Keytruda’s LOE, the expected counterbalance from Merck’s pipeline progression and new product launches seems to be progressing more slowly than anticipated. Despite Merck’s solid financial position, evidenced by its "GREAT" Financial Health Score on InvestingPro and strong cash flows that adequately cover interest payments, there appears to be a lack of urgency in pursuing business development that could mitigate the projected 10-20% decline in Keytruda sales post-LOE. The company maintains an impressive 55-year streak of consistent dividend payments, with 14 consecutive years of dividend increases.
Citi remains optimistic about the prospects for Winrevair, a treatment for pulmonary arterial hypertension (PAH), and the overall impact of Merck’s pipeline, which includes enlicitide, an oral PCSK9 inhibitor with mid-2025 expected data, antibody-drug conjugates (ADCs) with 2027 expected data, and tulisokibart for inflammatory bowel disease (IBD) with data expected in 2026. However, the analysts express concern that there is a limited window for these assets to achieve commercial scale, assuming they succeed in phase 3 trials.
The first quarter of 2025 saw a 14% quarter-over-quarter decline in sales of Gardasil, Merck’s vaccine for human papillomavirus (HPV), indicating a slower recovery than hoped. Citi suggests that Merck could potentially alleviate some pressure on its stock through commercial-stage mergers and acquisitions valued at over $10 billion. Nonetheless, resolving policy uncertainties, such as tariffs and the Most Favored Nation (MFN) rule, seems to be a higher strategic priority for the company.
Citi is hosting a call today at 11:30 AM ET to discuss their thesis further, providing slides to accompany the discussion. This call will likely provide more insight into the rationale behind the downgrade and the revised price target for Merck stock. With a P/E ratio of 11.22 and robust EBITDA of $28.8 billion in the last twelve months, investors seeking deeper analysis can access comprehensive valuation metrics and 10+ additional ProTips through InvestingPro’s detailed research report, part of its coverage of 1,400+ top US stocks.
In other recent news, Merck & Co., Inc. reported strong first-quarter 2025 financial results, surpassing analyst expectations with earnings per share of $2.22, compared to the forecasted $2.14. The company also exceeded revenue forecasts, reporting $15.5 billion against a projected $15.3 billion. Despite these positive outcomes, Merck’s management decided to maintain their full-year revenue guidance but reduced the Non-GAAP EPS guidance by $0.06 at the midpoint, attributing this to an expected $200 million in-process research and development charge. Guggenheim Securities responded to these developments by lowering Merck’s stock price target to $108 from $115, while maintaining a Buy rating on the stock. The analyst firm cited the robust performance in the first quarter as a reason for continued confidence in Merck’s prospects. Additionally, Merck faces challenges in the international market, particularly with Gardasil sales in China, which have significantly impacted overall revenues. Despite these challenges, Merck remains focused on its strategic goals, highlighting potential product launches and business development initiatives to drive future growth.
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