40% Upside For Merck Stock?

Forbes

3 days ago

INDIA - 2025/05/20: In this photo illustration, a MERCK logo is seen displayed on a smartphone and ... More in the background. (Photo Illustration by Avishek Das/SOPA Images/LightRocket via Getty Images)
Although Merck (NYSE:MRK) is confronted with the unavoidable Keytruda patent cliff in 2028, the company is strategically positioning itself for further growth by diversifying and expanding its pipeline. Earlier this month, we highlighted how Keytruda is a ticking time bomb for Merck stock. In this analysis, we explore the potential upside for Merck despite its short-term hurdles. If you are looking for upside with less volatility compared to individual stocks, the Trefis High-Quality portfolio offers an alternative—it has outperformed the S&P 500 and achieved returns over 91% since its inception. Separately, check out – BigBear.ai: What's Happening With BBAI Stock?
Pipeline Depth: $50 Billion in Potential
While oncology contributes a significant part to Merck's revenue, its top-selling drug will confront biosimilar challenges after 2028. Nevertheless, Merck is set for substantial growth, with 20 new "blockbuster" drugs under development that collectively possess a sales potential of $50 billion. This strong pipeline indicates a strategic change from the company's dependence on Keytruda, seeking to create varied revenue streams across different therapeutic domains.
Several promising candidates are fueling this potential:
Recently Launched Drugs and Vaccines:
In addition to the pipeline, Merck's relatively recent drugs and vaccines are already making a significant contribution to revenue:
This strategic emphasis on a broad and impactful pipeline, alongside the robust performance of new launches, positions Merck for sustainable growth and a decreased reliance on a single product. The figures suggest that Merck's diversification strategy might be effective. If Winrevair meets its peak sales target and the wider pipeline realizes its potential, the company could significantly counterbalance Keytruda's decline and witness sales growth. The timeline is tight—most growth drivers need to materialize before 2028—but the groundwork is established. Also, see – Nektar Therapeutics Is Up 150%: What's Happening With NKTR Stock?
Investment Implications
Merck's upside potential depends on its capability to execute across several vital areas: successfully moving its pipeline forward, expanding into new regions, and making strategic acquisitions. The company has a demonstrated history of identifying and developing blockbuster drugs, and its current strategy directly addresses its previous dependence on Keytruda.
Merck's acquisition strategy clearly reflects its commitment to constructing a portfolio extending beyond oncology. For instance, the recent $680 million acquisition of Harpoon Therapeutics enhances its expanding immunotherapy portfolio. Likewise, the Acceleron deal instantly boosted revenue with Winrevair. This tactic of acquiring late-stage assets offers both immediate revenue and long-term growth potential. With a cash reserve exceeding $9 billion, Merck is well-positioned to pursue additional acquisitions that can drive revenue expansion.
For investors, this represents a compelling turnaround narrative: a company transitioning effectively from single-drug reliance to diversified growth. The upcoming 12 to 18 months will be pivotal in determining if Merck can fulfill its pipeline commitments and sustain growth momentum past 2028. In addition, look at – What's Happening With Amgen Stock?
Valuation and Upside Potential
Currently, MRK stock trades at around $80, valuing the company at 3.2 times its trailing revenues. This falls below its three-year average price-to-sales (P/S) ratio of 4.4 times, which suggests that investors have likely considered some of the obstacles Merck might encounter beyond 2028, along with near-term worries regarding its Gardasil vaccine. Our dashboard on Merck's valuation ratios provides further insights.
While Gardasil is facing temporary challenges in China, sales have risen in every other region. The market pause in China appears to be temporary, providing additional upside as demand stabilizes. If MRK stock were to revert to its historical P/S ratio, it would result in a price exceeding $110, indicating nearly 40% upside potential.
This situation with Merck underscores the critical necessity of establishing a resilient investment portfolio that effectively balances risk and reward. Merck's scenario serves as a potent reminder that even highly successful pharmaceutical companies inevitably encounter patent cliffs, which can drastically shift their growth paths.
Merck's dependence on Keytruda, while currently its greatest strength, also poses its most substantial near-term risk. Although Merck is strategically addressing this with a pipeline that entails a $50 billion potential, there are significant risks associated with such a transition.
Investors must evaluate the company's present strong performance against the certainty of forthcoming challenges, making diversification across multiple stocks essential for managing this type of concentrated risk. Our Trefis High Quality (HQ) portfolio exemplifies this strategy, having significantly outperformed the S&P 500, Nasdaq, and Russell 2000, achieving over 91% returns since its inception. Balancing risk and reward is precisely why diversifying across multiple stocks is vital.