Goldman Sachs raises Merck stock rating to Buy, target to $103

On Tuesday, Goldman Sachs analyst team began coverage on Merck (NSE:PROR) & Co., Inc. (NYSE:MRK) with a Buy rating, adjusting the price target to $103 from the previous $129. The analysts highlighted the current market conditions, which they believe have resulted in Merck's shares being undervalued. According to their assessment, the market is implying an overly pessimistic terminal growth rate for the company, not recognizing the value of its pipeline and effectively undervaluing its Animal Health business.

The Animal Health division, which recorded approximately $6 billion in revenues for 2024 and is on a growth trajectory, is seen as a key area where the market has mispriced Merck's stock. With total company revenues reaching $64.17 billion and maintaining a robust gross profit margin of 77%, the analysts suggest that in the current market environment, investors should assign a higher multiple to such stable revenue streams that are not subject to policy-related risks. InvestingPro subscribers can access detailed financial health scores and 8 additional exclusive tips about Merck's performance.

Goldman Sachs' coverage note also pointed to uncertainties in the market regarding business development and mergers and acquisitions, which have been integral to Merck's growth strategy, particularly as it approaches the period when its blockbuster drug Keytruda will face patent expiration. Despite these concerns, the company maintains strong fundamentals with a P/E ratio of 11.94 and impressive free cash flow yield. The analysts remain optimistic about the company's prospects, a view supported by Merck's solid financial health score on InvestingPro's comprehensive analysis platform. They anticipate a recovery in Merck's stock as it moves past the previous summer's headwinds related to Gardasil in China and as the focus returns to the execution of Winrevair, a significant new product cycle.

Furthermore, the analysts are looking forward to the upcoming data from three ongoing Phase 3 trials for Merck's oral PCSK9 inhibitor program, which is garnering increasing interest. These developments are seen as setting the stage for a positive turnaround in Merck's stock performance.

In other recent news, Merck has reported significant developments across multiple fronts. The company's financial performance is under scrutiny as UBS analysts maintain a Buy rating on Merck with a price target of $105, although they express concerns about overly optimistic sales estimates for Merck's Gardasil vaccine. UBS projects Gardasil sales at $1.3 billion for the first quarter, contrasting with a consensus estimate of $1.4 billion. Meanwhile, Merck's Keytruda continues to show promise, with first-quarter sales estimates aligning with consensus at $7.4 billion. In clinical advancements, Merck's WINREVAIR has shown a 76% reduction in morbidity and mortality risk in pulmonary arterial hypertension patients during the Phase 3 ZENITH trial, leading to the early termination of the study due to efficacy. Additionally, Merck's new subcutaneous formulation of pembrolizumab for metastatic non-small cell lung cancer has demonstrated comparable efficacy to the intravenous form while significantly reducing patient and healthcare professional time. On the regulatory front, the European Commission has approved Merck's Capvaxive vaccine for adults, expanding its use in both Europe and the United States. These recent developments reflect Merck's ongoing efforts to innovate and address diverse healthcare needs.

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