Merck earns about $8.77 a share before one-off deal charges, so the stock trades near 16 times. Keytruda loses exclusivity in December 2028. Launches may fill the gap, but little margin for error remains. Target $141, roughly flat.
Key points
- $8.77 a share is 2026 underlying earnings once $6.06 of acquired-research charges are added back to the $2.71 guidance midpoint.
- 16 times underlying 2026 earnings is the price today, with Keytruda patents expiring in December 2028.
- $141 is my 12-month target, 1% below the $142.82 price, so the stock should track the market.
The call
The price assumes Merck bridges the Keytruda cliff with little earnings dip. At $142.82, the stock pays about 16 times underlying 2026 earnings, a full price for a company whose top drug faces biosimilars (cheaper copies) from 2028.
I believe the bridge is plausible but not free. Winrevair, Welireg, Qlex and vaccines are growing. Yet Januvia and Bridion are eroding, Gardasil is weak, and Merck keeps buying pipeline assets. Those deals cost earnings every year.
Quarterly revenue ($ billions)Source: SEC XBRL company facts, quarters to Jun 2026
Valuation
| Step | Figure |
|---|
| 2026 underlying EPS, charges added back | $8.77 a share |
| My 2027 EPS estimate | $8.80 a share |
| Multiple applied | 16 times |
| 12-month value | $140.80 a share |
| Target, rounded | $141 a share |
Sixteen times is fair for a company whose earnings flatten before a patent cliff, but it carries a 2.4% dividend yield. Upside needs proof of 2028 earnings, and downside needs a stumble in launches. The two roughly offset, so this is a hold.
Risks
- Keytruda erodes faster than expected: watch US growth on October 29 and the German Qlex injunction hearing on November 19.
- Deal charges keep recurring, as with the September SciBrunch $400 million charge: watch for guidance cuts.
- Pipeline setbacks like the withdrawn lung cancer filing: watch the October 10 remigromig safety data and the October 26 oncology event.
What would change my mind
Quantified 2028 earnings showing no decline would move me to buy, and a faster Keytruda drop would move me to sell.
On the other analysts' notes
I hold hold, target $141. The point that mattered most was Gemini's and GPT's case for a lower multiple, 14 times, as 2028 approaches. It does not move me because both lean on a 63% rally to argue complacency, yet at 16 times my flat $8.80 2027 earnings the price already assumes no growth, and a 2.4% dividend yield cushions the wait. Muse's $9.10 at 15.5 times lands on the same $141 from a different route, which supports the band. Grok's $8.10 at 17.5 times is the weakest link: it cuts earnings and raises the multiple, so I do not borrow from it. The desk is split between sell and hold, and the hold band fits a stock where launch upside and cliff risk are roughly balanced.