Merck stock upside: Why Deutsche Bank sees 26% growth despite Keytruda patent

Investing.com -- Merck (NYSE: MRK) stock rose 2% Friday morning after Deutsche Bank analyst James Shin upgraded the pharmaceutical giant from Hold to Buy, setting a price target of $150.00, up from $115.00.

The upgrade, which suggests a potential 26% upside from Thursday’s closing price of $119.24, comes as Deutsche Bank believes the market is undervaluing Merck due to concerns about Keytruda’s upcoming patent expiration.

In his analysis, Shin drew parallels between Merck’s situation and AbbVie’s successful management of Humira’s patent cliff. "We believe the market is currently undervaluing MRK, largely due to Keytruda’s looming patent cliff. Our analysis indicates a clear path for MRK to navigate this transition effectively," Shin noted.

The analyst projects Merck’s trough earnings at approximately $11 per share, more optimistic than the Street’s consensus of around $10 per share. Shin pointed out that historically, investing at the point of trough clarity has presented significant opportunities, citing AbbVie’s valuation multiple expansion from 11x to 15x once markets realized Humira’s trough was manageable.

Deutsche Bank’s assessment suggests Merck may already have visibility to low-single-digit terminal revenue growth excluding Keytruda. The company’s pipeline, strengthened by acquisitions including Winrevair, Ohtuvayre, and CDTX, could provide over $35 billion in risk-adjusted revenue by 2035, potentially easing the transition beyond Keytruda.

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